A 20 percent drop in the Dow could happen, according to CNBC’s “Mad Money” host Jim Cramer, unless the government passes this bailout plan.
The Dow Jones Industrial Average ( DJIA) closed at 10,825 on Sept. 24, but Cramer warned it could reach a low point not seen in over five years – when it closed at 8,141 on March 17, 2003 – if legislators stall approval of a taxpayer-funded bailout.
“I’m going to spot the bears 2,000 Dow points if this plan fails,” Cramer said. “You know, a fifth of the S&P 500 ( S&P) could decline precipitously if this plan fails. But in terms of real people understanding this, the world revolves around credit and confidence. Both of these things disappeared last week because of the foreclosures. Why? Because so much of the money the banks have is tied up in failing mortgages and they don’t have the capital to lend to you.”
Cramer has been a vocal proponent of Treasury Secretary Henry Paulson’s plan – estimated to be cost as much as $700 billion. Cramer has supported the plan on previous shows. But on Sept. 24, Cramer told his viewers that both Paulson and Federal Reserve Chairman Ben Bernanke are doing are terrible job of selling the plan to the public.
“I think in the end – Stone Age coming, Stone Age coming,” Cramer said earlier in the day on the “Stop Trading” segment on CNBC’s “Street Signs” with Erin Burnett. “I want to be on board against the Stone Age – against a financial
Cramer proposed the Treasury Secretary should dumb the issue down to a level “
“When it comes to Hank Paulson’s bailout plan, we got a serious situation on our hands,” Cramer said. “We got a case of genuine Wall Street jibberish overwhelming Main Street English. Unless Paulson takes a 24-hour Berlitz and Dale Carnegie course on how to win friends and influence people in the vernacular of the people, his much needed rescue plan will die in Congress. And we are going to have ‘The Great Depression, Part 2’ on our hands.”
Cramer gave a similar warning about a potential depression on Sept. 16 leading up to the eventual federal government bailout of American International Group (NYSE: AIG). He warned if the
“Frankly again, I don't really care if my community bank is doing well,” Cramer said on the Sept.16 “Stop Trading” segment of CNBC’s “Street Signs.” “I care about AIG and the fate of the western banks, all of which have relied on AIG for one or another kind of risk transference.”