Stop Trading!: Geithner’s Live-or-Die Stress Test

Regional banks are worried about the Treasury secretary’s proposed “stress test,” Cramer said during Friday’s Stop Trading!. The plan, designed to show who needs government money and who doesn’t, has many firms doubting they’ll make the cut.

Timothy Geithner’s financial rescue plan, announced this week, seemed to have a bit of subtext to it, Cramer said, a between-the-lines message that not every bank will survive this crisis. Up until now, all financial institutions qualified for aid. But Geithner’s imposed limitation might be a way of saying, “Not everybody can make it.”

“The stress test means who shall live,” Cramer said, “and who shall die.”

Why do the big banks get special treatment? Because an institution the size of Citigroup is just too much for the government handle. And someone has to survive to take on the regional banks’ deposit base.

This is the same strategy that pulled the U.S. out of its savings-and-loan crisis in 1990. About 1,600 banks went under, their deposits going to stronger competitors.

“It worked,” Cramer said, “but it was brutal.”

Elsewhere in the market, China demand was pushing many stocks higher. That country’s infrastructure-based stimulus plan has rejuvenated the need for commodities, raw materials and machinery.

And lastly, Cramer endorsed Pepsico , especially after the company’s most recent earnings report. Pepsi’s doing better than even Coke .

“Pepsi totally delivered,” Cramer said. “This was a monster good quarter.”

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