Cramer's Stop Trading - Summer's Draconian Statement (1/12/09)

Includes: BAC, C
by: Miriam Metzinger

Stocks discussed on Jim Cramer's Stop Trading! TV program, Monday January 12.

Untouchable Banks: Bank of America (NYSE:BAC), Citigroup (NYSE:C)

Banks are no longer going to enjoy the generous funding they did under the Bush Administration; Lawrence Summers, director-designate of President-Elect Obama’s National Economic Council, issued a letter with new limitations financial institutions have to follow before getting money from TARP. Cramer called the statement “draconian…probably more draconian than even they realized,” and thinks it may “freak everyone out” and make banks that do need aid, such as Bank of America or Citigroup, seem untouchable.

Institutions will not be able to use TARP funds to acquire strong companies, pay dividends beyond “de minimis” amounts or buyback stock. Such limitations may curtail a bank’s opportunity to make money. Cramer said this is exactly why the banks were afraid of a Democrat in the White House and added, “When you vote for the Democrats, they’re not going to favor the banks over the struggling homeowners.” The Democrats will “help the people who are being foreclosed, not the people who are doing the foreclosing.”

While reform might have been necessary, Cramer thinks the timing was off, and it could have been delayed until the economy improved somewhat. However, the Obama Administration chose to take these “draconian measures” in January to distinguish itself from the Bush Administration.

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