In the era of globalization, where the economies of the world aren’t confined by international boundaries, socialism shouldn’t be either – according to CNBC “Mad Money” host Jim Cramer.
Reports have surfaced that the Federal Reserve is softening its no bailout stance and is considering extending a “loan package” to the endangered insurance company, American International Group (AIG) (NYSE:AIG [1]). On the day the Fed decided to leave the Fed funds rate unchanged [2], Cramer called on the governments of the world for a bailout of the firm.
“Do I care about a rate cut versus a bailout of the biggest institution – the one that cannot fail, cannot fail – AIG? I can take a rate increase if they bail out AIG,” Cramer said during the September 16 “Stop Trading” segment of CNBC’s “Street Signs.” “I mean, that’s how important this is. Obviously I don’t want a rate increase, I hear those guys talk about this.”
According to a September 16 article posted on CNNMoney.com, AIG needs to raise as much as $75 billion to avoid collapse [3]. AIG's rush to find cash happened after Fitch, Moody’s and Standard & Poor’s downgraded the company’s credit ratings across the board [4] late on September 15.
Cramer specifically faulted bad European banks for AIG’s problems, so he reasoned the governments of the world should all chip in.
“But, I’m saying, AIG – we need to pass the hat around the world,” Cramer said. “AIG – look at these European banks. That’s because AIG in 2005 decided to abandon our market and go write a series of insurance policies for virtually every bad European bank. All that stuff is coming due. AIG must be saved in a pass-the-hat-around fashion.”
His call-to-action would involve an immediate federal government loan to AIG, and then President George W. Bush would initiate a meeting of finance ministers from around the world that would orchestrate the bailout.
“You give them a loan right now and then President Bush, yes President Bush calls the ministers of finance – in all, everybody in from China to France to Germany and says, ‘Listen, this is your problem. It is not just our problem and most of the policies that are going to take down AIG are from Europe, not from
Cramer said without this bailout, the Federal Reserve’s hands are tied.
“That’s what we need – we need a pass-around, we need it now,” Cramer said. “The Fed can do nothing, but if we get that package, we are saved. That place – it’s the number one institution in the world right now that must be saved, number one.”
The consequences of an AIG failure would be cataclysmic to financial markets according to Cramer. He told CNBC “Street Signs” host Erin Burnett all the other troubled institutions could fail, just not AIG.
“Everything else could go except for AIG,” Cramer said. “The markets could freeze and they would not open tomorrow.”
Earlier CNBC reported Federal Deposit Insurance Corp Chairman Sheila Bair said the
“Frankly again, I don't really care if my community bank is doing well,” Cramer said. “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.”
Correction: Jim Cramer was originally misquoted as saying: "Frankly again, I do really care if my community bank is doing well." BMI regrets the error.