Jim Cramer: Big Bank failures are imminent.

[Porsche-O-Phile]

Although Cramer is a sensationalist and an entertainer these days, occasionally he hits it squarely on the head. Last night's "Mad Money" was pretty interesting, because typically he's not known for being bearish or getting worked up about problematic segments of the market (he tends to be an optimist - reference his support and positive talk about Bear Stearns right up until the bitter end where they collapsed entirely).

Cramer is (once again) hitting it dead on the head by saying that "the silence is deafening" from our government officials with respect to having any sort of plan to contain losses from forthcoming (and probably imminent and inevitable) bank failures - big banks - banks like Citigroup, Washington Mutual, Wachovia, etc. Not the little guys, big guys.

Now I don't want to rail on about how the idiots that promulgated the housing bubble have destroyed the economy and because of it, the end of the world is nigh (I've ranted about this elsewhere before enough times and I think anyone who's been here a while knows my position on it) but pay particular attention to what he's saying here. This guy is a Wall Street insider who's plugged into a lot of the back room discussions and has a lot of "off the record" conversations with major players. If he's worrying about MAJOR banks failing "just around the corner" and pointing to an 80%+ decline in his housing/homebuilder/lender index fund in just ONE YEAR, it's time to pay attention.

More to the point, perhaps it's time that our "leaders" in Washing-toon start paying attention and try to come up with a legitimate plan to help contain losses by lining up potential buyers for collapsed banks like they did in the early 1990s. This time, Cramer is not ranting and screaming as he did in his famous "they know NOTHING!" interview (in which he went postal screaming about the Fed). He's calmer and more rational here, but the message is pretty cutting and clear - major problems are still out there and the Day of Reckoning is coming. Perhaps a lot sooner than people think. . .

And (as usual) our "leaders" have no plan, no vision, no proactive approach and ABSOLUTELY no exit strategy. It's become a hallmark and an expectation of this administration and of government in general.

I'll try to find a video capture of last night's show (I have it on Tivo) or if someone else can find it and/or post it, it'd be useful. The monologue in question is towards the end of the program for 7/7/08. A text of it from madmoneyrecap is below.

Discuss away. . . But I think Jim is right and I wouldn't rule out seeing a world without Citi, Wamu or Wachovia (or any one or more of a bunch of others) in the very near and not-too-distant future. . .

- - - - -
Text of monologue from 7/7/08 show
- - - - -

JJC: We're constantly seeing stocks go down because someone spread this, someone said that, some rumor on the tape, some guy got on tv and said something bad, some company announces this or that, then another company put out a press release... Uh, but I don't want to get too Simon and Garfunkel on you... What we don't hear discussed that much at all are the stocks that go down on the sounds of silence... Hello, no news flow, my friend. Yeah, that's two... It's too bad, it's too bad... Because right now there are a lot of stocks going down on the sounds of silence...

The banks, the brokers, the homebuilders... The three groups, frankly, that make up the Achilles' heel of this market... They've been falling, not because of anything anyone said, despite stories you might have heard in paper that so and so CEO says this, that there's rumors being spread... Uh, uh... No... I think they're going down because none of the right people are saying anything, nor are they backing anything up with buy backs or anything substantive... I am bringing this up tonight, yes, I am bringing up the financials because at last, these stocks are in rally mode and I am not a pile on guy, I am not a guy who does that kind of stuff where they throw the flags and jumping on and stomping on guys fingers and bodies and stuff... No... See I didn't want to offer up negatives right into a panic... That's not my style... I like to wait... And I have waited... It's taken me forever, but I have waited until we get some uptake in the banks and brokers to take action... Lordy, we got it today... And I bet you'll get a follow through, a follow through to today's explosive action to financials tomorrow...

So you can at last debate their merits and consider what I'm about to say in a positive atmosphere, for once... It's been so clouded and toxic, it reminds me of that little breaststroke competition I once had in the Love Canal... Alright, despite the positive run ups today in the banks and brokers, I believe we could still be facing, I believe we are facing some big financials collapses, and not just the small ones... Not just these little regional banks that you hear about like the Isely brothers, whatever that thing is out there... Don't worry about it, that's an old group... I'm old, alright?... I'm truly worried about the fundamentals of Citigroup, of Bank of America, with what I think will end up being considered an ill-fated acquisition of Countrywide, I am as you know, concerned about the viability of the largest savings and loan, look what a statesman I've become, huh... Well down here I've become a statesman...

When I was out at USC I was telling people to quit work at Washington Mutual before the posse came... But I'm now just saying that I'm concerned, I'm concerned about Washington Mutual... I fret over Wachovia, especially given its incredible decline, lack of permanent CEO... But what do I hear?... I hear nothing... I hear total silence from these companies... Now all I know is that they have unclear losses and unclear balance sheets in an environment where home prices are still deteriorating rapidly... We've got silence from Fannie Mae and Freddie Mac, the true Simon and Garfunkel of the joint... We've got silence from Lehman, other than some squawking that the shorts are at fault... Well, I almost bought that logic... We've got silence from Merrill, except for the occasional sentence, the occasional whiff that they might be selling some bomber or something... And worst of all, we've got silence, more frightening than the silence of the lambs from any of the actors in federal government, who could have taken action and so far haven't... I think our government will need a plan, a definitive plan for when these banks start to fail again, but all I hear about is silence, and silence is deafening... Just a whisper of a plan... How about a vague rumor?... Some slight hint that someone in the government is doing something to avert, or at least deal with what will happen when a couple of giant banks collapse... That's all I think we really need is some assurance, that will give this group and the market some relief so the stocks can go higher and they can issue more equity so they are in less trouble... But right now you could hear a pin drop... Let me be clear... I am no longer ranting and raving about saving the financials like I did in that Stop Trading Segment I did that was such a hit on YouTube... Now, I have come to accept that despite my meltdown, when something could have been done then, the fed did get on the stickle later... But it no longer has control over this bank situation by their own admission... I mean, they've basically told you they're done cutting, which means the die is cast and now I think the real bank failures are around the corner...

Again, I am sensitive to the fact that the stocks are going up right now, so you can take action... I am not a pile on guy, kicking them when they're down, giving them the business, alright?... Right now I'm saying that for things to get better we need to start hearing from the feds about their plan for averting the financial apocalypse, and I don't mean some Sunday night conference call to save Bear Sterns... I don't need anything that's done on the fly, I need something planned... Because I'm afraid, I think the Street is afraid that they have no plan, just like they had no plan when this whole mess started... Or maybe they don't believe in a plan... Maybe they think it's like the potato famine in 1847... That the Irish figured it out themselves... That didn't work... I don't think the banks will be able to do it on their own... There seems to be no way they'll be able to raise all the capitol they need... Who the heck wants to give Lehman or Merrill Lynch another dime, after the beatings that everyone has done and has taken... This is like four times bitten, twice shy... You can only be so stupid... The mutual funds that own these banks have taken horrendous losses and concomitant redemptions... The big outside investors have been crushed, and now they have scrambled eggs on their faces... Make mine sunny side up... For making the stupid decision to invest in these banks, Sovereign Fund Investors, they've been completely pantsed by greedy sales people who told you this is the last injection... I think we need the government to round up the usual buyers right now, if there are any usual ones... We need them to round them up in a cool moment, to be ready to merge with the banks that I believe are going to fail, before everything starts to fall apart in the heated moment that may be coming...

- - - - -
(continued below)

[Porsche-O-Phile]

(continued from above)
- - - - -

We need to know that there's a short list of willing and ready buyers from around the globe as we had in 1990, the last financial meltdown... We need to know that they're more than just JP Morgan out there that's ready to take a swing... I believe even a whisper of a plan like this would help this market tremendously... You want to know how bad it is?... You want some numbers behind my dire pronouncements?... Okay, I'm ready, make me look stupid again... Alright, presto!... Back on August 3rd, I started a stress index with 12 stocks, roughly representing the homebuilders, the brokers, and the banks... I created the index to give me an idea of just how bad things were in the banking and housing complex... On August 3rd it started at 100... The Mad Money stress index is now at 20... That's an all time low that it hit today, it touched 18 today... Meaning that the stocks in this group have fallen an average of 80% already, and I'm not saying anything about things getting better, other than for this trade that started today... At least not until someone or something breaks the terrible sound of silence that I believe is pulling this group, and with it, the whole market, down... I do not have an answer for this problem, but I'm hoping someone in the government does... Now, I've told you about the bad, I don't want to leave you with the impression that nothing can be done... Not after a decline like this... Alright, did you see Matt Lower do that this morning?... No... Okay, particularly there are outfits like JP Morgan ready to do more buying... We learned that from CEO Jamie Dimond today... That was subtext... I felt when he said that the bear axis? is almost done that he's ready to roll... Now, I actually liked what I heard for the first time in a long time from treasury secretary Hank Paulson, about how important Fannie Mae and Freddie Mac are... It made me feel that they're not going to go away entirely... But what we need to hear is that the federal government still stands behind these organizations, and will remain so and give us an explicit guarantee, not the implicit one as long as Americans need homes... Oh, and most importantly, we need to hear the following words from Shelia Behr, from the FDIC or I'll take them from treasury, I'll even take them from under the undercycle belt, I'll take them from Bob Steel... And the words we need to hear, and they don't even have to do it for a biattribution... They can just leak it, okay?... The words we need to hear are "we have large bank buyers who want in, and we have plans for them to be able to contain the losses of the crushed banks they buy". That statement, even if given off the record, somehow, filleted through, it would be big... But my question is, do they have the buyers?... In my view, the problem is nothing is being done, or at least nothing is being talked about... I think of all this, all this could get better... Not fixed, but better, if we heard some word, or some kind of plan from the feds to find buyers to merge with the banks that I believe will fail in the not too distant future...

Oh, and here's one that really just dazzles me... How can both presidential candidates completely ignore this issue?... Do they not know it?... This one, this is the biggest issue facing the American economy... Instead they focus on tax cuts... That didn't work with the last guy... Tax cuts... There's no solution at all... Maybe both of these guys were out to chow... come on guys, don't wait until we on Wall Street blow chow... Come up with plans.

The Bottom Line!: I've laid out a grim picture. That's okay, the market is going up right now... But I think that after this phenomenal 80% decline from last summer, all it will take to improve things is someone in a position of authority to break the silence and say, yes we have a plan, yes we're doing something to make sure that the banks collapse... They will at last do something as smoothly and with as few repercussions as possible... Without it, while there's not much room between here and the floor, we will be visiting sometime way too soon

[turbo6bar]

I think the plan is already in place: inflate ourselves to great wealth. When a 3/2 home in the worst parts of USA are worth $2million, we will all be rich.

The government was laissez faire during the run-up. I am not confident their meddling now is necessary. Really, though. What can they do besides socialize the losses? Somebody has to eat the dung sandwich. Let Wall Street sell the house in the Hamptons. Let 401k funds take the hit. Why should public funds be allocated to support private assets?

[Porsche-O-Phile]

Dunno if allocating public funds is the right answer and to be honest, I'd totally oppose such a move; it's just interesting that Obama, McCain AND Bush all are completely silent on the issue and NONE of them seems to have any sort of plan for what to do if major banks collapse entirely. None of them. That's kind of frightening. Bush has the keys to the kingdom right now; either Obama or McCain will be given them in a few months. NONE of them has a clue, a plan, a strategy or even an opinion. The 900-pound gorilla in the room is being completely ignored.

It'd sure be nice if ONE of them would say "we're spoken with other financial institutions and they are prepared to buy up portions of any institution that gets into trouble (like JP Morgan did)" or "we're prepared to offer tax breaks to companies who agree to complete and total audits/reports of exactly how much bad debt is on their books so the market can know and respond accordingly" or "we are prepared to raise the level of foreign ownership of major banks that get into trouble" or SOMETHING. These guys are supposed to be the experts and have all the tools and smart finance guys on their staffs. NONE of them has said jack. That's what Cramer is pointing out and he's 100% right - it is very, very worrisome.

Nobody's saying "bailout", they're just saying "plan". In characteristic form for our government, they apparently have none.

[grudk]

Don't think you can cherry-pick wisdom from Cramer. His show is pure entertainment.

That said, we'll have some bank failures, perhaps some of the names you've mentioned. IMB is pretty near to death

FDIC protects depositors, to a point, and beyond that?

Let them fail...

Most will not fail, and the economy will muddle through despite the sensationalism. I think we are in for a painful recession, but am not worried about systemic financial meltdowns. Neither is J6P, and that's who the politicians aim their policy statements at.

[Mule]

This should be interesting to watch.

[kstar]

I would think foreign investors and sovereign funds will continue to play a role in boosting banks' capital positions while taking equity positions.

Obviously a big cash infusion to save a bank would earn a bigger equity piece.

[john70t]

Mabye we should advertise "US banks and ports for sale". Thanks Bush/Greenspan.

[tabs]

There is ONE THING YOU BOYZ KEEP FORGETTING...911....it opened the abyss and to keep the financail system liquid INTEREST RATES HAD TO GO DOWN> to 1%. GM lowered financing to 0%...REMEMBER??????

Then what happened was the smart Boyz decided to make a bunch on the spread and eventually started the funny money loans when housing prices went toooo high...

[tabs]

So let us get the FACTS STRAIGHT snf not dwell on fantastical thinking about Greeny or Bushy...

The banking system is in a fking mess....some of those names will not be around or be downsized to the size of a peanut after everything is sold off.

BUT DO NOT FORGET...HOW MANY PENSION FUNDS WERE INVOLVED IN BUYING THOSE LOAN PACKAGES AS WELL>>>>everybody is basically effected.


TIME IS AN ALLY...the engine of the economy needs time to asorb the losses.

[tabs]

One BIG reason nobody is saying very much is that the horse has allready left the barn. They wall street, the politiicans, the fed, and every financial guy in the world DOES NOT KNOW HOW to fix the problem. Every tool that has worked in the past 75 years to right the economy in crisis situations HAS BEEN USED>

Those tools have wrked to a degree...but they are having diminishing effects...sooner or later there will be nothing left to do but watch and pray.

This thing could creat ANOTHER Great Depression...

Let me put it to you this way....MOST OF YOU WILL HAVE NOTHING....no job. no house, no money, no car...NONE OF YOU REALLY HAS ANY COMPREHENSION OF WHAT A GREAT DEPRESSION IS LET ALONE UNDERSTAND IT.....

PWD and a few others have some idea cause they were old enough to have been around the aftermath of it when they were young.

[tabs]

Ohhh and the let them fail attitude....thats just great.....You let them fail and what you will have is a collapse of the system.... FDIC & FSLIC ain't got enough money to cover....once that happens it is GOODBYE TO EVERYTHING...

Those brokerage money market accounts are BACKED BY NOTHING.... they buy short term bonds to pay the interest. If the Brokerage has a RUN (everybody wanting out at once) they will be foreced to sell the furniture that the employeees sit on to pay pennies on the dollar...

[the]

Hmm, Cramer says big bank failures are imminent?

Maybe there is hope for the big banks after all.

[TheMentat]

Originally Posted by Porsche-O-Phile

It'd sure be nice if ONE of them would say "we're spoken with other financial institutions and they are prepared to buy up portions of any institution that gets into trouble (like JP Morgan did)"

This is basically implied by the very nature of capitalism. Banks can, and will "fail", just like any other company. The remaining assets will be de-valued to a price at which they become attractive to an opportuunistic buyer with deeper pockets.

To be honest, I'm not entirely clear why the Fed had to effectively provide guarantees on Bear Stearns' Mortgage assets. SOMEBODY would have bought the assets eventualy... perhaps at a price that existing shareholders would have liked even less. It seems to me that these sorts of moves are geared more towards industry protectionism, as opposed to "saving the economy".

[tabs]

Originally Posted by TheMentat

To be honest, I'm not entirely clear why the Fed had to effectively provide guarantees on Bear Stearns' Mortgage assets. SOMEBODY would have bought the assets eventualy... perhaps at a price that existing shareholders would have liked even less. It seems to me that these sorts of moves are geared more towards industry protectionism, as opposed to "saving the economy".

The Fed had to make the guarntee or Morgan Stanley would have WALKED AWAY. It was too much RISK for them to assume. Per Jamie Dimon

Also there were NO OTHER BIDDERS for Bear Sterns that weekend.. and Bear Sterns would NOT HAVE MADE IT THROUGH that Monday without going BK...there would have been a run on them...which would have forced them into BK...

Mr Dimon said that a MELT DOWN of the financial system..meaning a run on other instutions as well..was "LIKELY"

So essentially you have a life today because of the Feds actions...

[MikeSid]

Originally Posted by the

Hmm, Cramer says big bank failures are imminent?

Maybe there is hope for the big banks after all.

Damn. I was gonna say that!

[TheMentat]

Originally Posted by tabs

The Fed had to make the guarntee or Morgan Stanley would have WALKED AWAY. It was too much RISK for them to assume. Per Jamie Dimon

Also there were NO OTHER BIDDERS for Bear Sterns that weekend.. and Bear Sterns would NOT HAVE MADE IT THROUGH that Monday without going BK...there would have been a run on them...which would have forced them into BK...

Mr Dimon said that a MELT DOWN of the financial system..meaning a run on other instutions as well..was "LIKELY"

So essentially you have a life today because of the Feds actions...

Sounds more like Mr Dimon is a shrewd businessman for stoking the fears of guys at the Fed.

[turbo6bar]

Originally Posted by Porsche-O-Phile

it's just interesting that Obama, McCain AND Bush all are completely silent on the issue and NONE of them seems to have any sort of plan for what to do if major banks collapse entirely. None of them. That's kind of frightening. Bush has the keys to the kingdom right now; either Obama or McCain will be given them in a few months. NONE of them has a clue, a plan, a strategy or even an opinion. The 900-pound gorilla in the room is being completely ignored.

An analyst from Germany estimated total credit losses would reach $1.6 trillion. That estimate may even be too conservative. I think it would be hard to reach a plan that addresses such losses, much less the ripple effect through economies. The silence of top politicos may be admission of the sheer magnitude of the mess. And Senator Dodd's support of a mortgage plan is due to healthy campaign contributions. He doesn't actually care.

Like I said before, it's not much of a plan without public money being thrown into the fire, because the simple fact is you can't polish a turd. **** is ****. No amount of financial innovation or accounting will change that fact. If the Treasury were to print a few trillion dollars and buy that pile of turds, perhaps we would see restoration of easy money. Thanks American taxpayers and thanks to national deficits.