Cramer: U.K. Bank 'Socialization' a 'Great' Plan for U.S.
Government ownership of banks â itâs enough to make free-market capitalists cringe.
However, CNBC âMad Moneyâ host Jim Cramer didnât think âsocializationâ of banks was necessarily a bad thing. He appeared on the Oct. 13 broadcast of NBCâs âTodayâ to explain the
âWhat I hope will be â and we donât have the real details yet, but if youâre a bank thatâs in trouble, they will give that bank money, take back stock, really, take back actual equity, and say, âPlease lend,ââ Cramer said. âWe havenât had that kind of â what would be regarded as socialization at least a year ago.â
âWhat was he heard from the British press conference was, âWeâre going to take over the bad banks, weâre going to kick out all the bad management,ââ Cramer said. âBut for the better banks, weâre just going to give you cash and take back stock. That could be a great plan for us.â
But this proposal has a serious downside Cramer didnât address, according to David Malpass, a former senior Treasury official. According to Malpass, who was quoted in an MSNBC.com article written by John Schoen, if banks were to sell stock to the government it would dilute the value of stock held by investors and that would put greater pressure on lenders.
âIf theyâre going to go in with an injection of capital into banks where the taxpayer is going to profit from that, that drives down equity capital in banks,â Malpass said. âItâs a giant sucking sound away from bank equity and away from bank equity capital and from lending. Banks wonât lend.â
âI hope we dodged it,â Cramer said on Oct. 13. âIf you did it even at the worst moment on Monday, you dodged an 18 percent decline. It will take many years to make that money back unless we have a dramatic improvement and I donât see that happening.