Stop Trading!: Nationalizing the Banks?

News that Bank of America is again seeking federal aid in order to keep the doors open sent that stock tumbling in Thursday trading. Citigroup also took a hit on concerns the bank won’t be able to handle its subprime-loan losses. Even JPMorgan Chase , which reported a better-than-expected quarter Thursday, is down.

Cramer pointed to increased interest in the UltraShort Financials ProShares as proof that more and more investors are betting against these banks. (These ultra-short funds take each dollar’s worth of investment and double or triple it to increase returns. As Cramer’s found out, that investing strategy hasn’t been working out.) But he thinks the thesis behind these investments is wrong.

Investors might be confusing the difference between taking money from the Troubled Asset Relief Program and the nationalizations that took place at AIG , Fannie Mae and Freddie Mac . Aside of reports on CNBC that that Citi, JPMorgan and Bank of America won’t be nationalized, as well as similar statements by FDIC Chairperson Sheila Bair, the TARP merely limits business activity for a period of time. There are conditions for government loan. But it’s not in anyway a government takeover.

Cramer seemed confident that banks feeding at the federal trough would eventually prosper rather than fail, which is what these investors seem to be predicting.

But that doesn’t mean these stocks are worth buying. Watch the video for more on today’s banking news, the TARP and whether or not Bank of America will still pay its dividend.

Join Cramer live in the studio for Mad Money: The State of Cramerica, a special town hall-style show on Wednesday, Jan. 21. Get your free tickets here!

Jim's charitable trust owns JPMorgan Chase.

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