Cramer: Why You Can't Own Banks, Insurers

There has been a silent Cold War waged among a company’s creditors, common stock shareholders and in some cases the government, Cramer said Wednesday, and right now those shareholders are looking a lot like the U.S.S.R. circa 1991.

The financials are one such battleground, after a letter from Lawrence Summers, President-Elect Obama’s National Economic Council director-designate, outlined strict new rules for banks borrowing money from the Troubled Asset Relief Program. In a nutshell, investors won’t earn returns so long as it’s taxpayers lending funds to Citigroup , JPMorgan and others in need of capital. The same goes for presumably cash-strapped insurers like Hartford Financial , Prudential , Principal Financial and Lincoln National.

Creditors, too, are doing their share of damage. Real estate investment trusts General Growth Properties and Developers Diversified are feeling the pressure from bondholders. Regional retailers Gottschalks and Goodys declared bankruptcy because they couldn’t pay their debts, as did Nortel Networks. And some of the homebuilders and a number of energy companies are in similar situations.

That’s why all the aforementioned stocks are down. The only companies that are holding up are recession-resistant names like Pfizer, Coca-Cola, Colgate-Palmolive and Clorox. They don’t need TARP money.

It’s this trend and not earnings, Cramer said, that’s behind the worst open to a New Year for the Dow and the S&P 500 in history. It’s the reason the Dow lost 248 points Wednesday. And what might be hardest to hear, at least for common stock shareholders, is that Cramer thinks this little war’s just starting.

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Jim's charitable trust owns JPMorgan Chase.

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