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     Government ownership of banks – it’s enough to make free-market capitalists cringe.

 

     However, CNBC “Mad Money” host Jim Cramer didn’t think “socialization” of banks was necessarily a bad thing. He appeared on the Oct. 13 broadcast of NBC’s “Today” to explain the benefits of the United Kingdom and U.S. governments pumping cash into private banks for stock ownership.

 

     “What I hope will be – and we don’t have the real details yet, but if you’re a bank that’s in trouble, they will give that bank money, take back stock, really, take back actual equity, and say, ‘Please lend,’” Cramer said. “We haven’t had that kind of – what would be regarded as socialization at least a year ago.”

 

     Cramer approved of the UK’s socialistic proposal and suggested it could be “a great plan” for the U.S.

 

     “What was he heard from the British press conference was, ‘We’re going to take over the bad banks, we’re going to kick out all the bad management,’” Cramer said. “But for the better banks, we’re just going to give you cash and take back stock. That could be a great plan for us.”

 

     But this proposal has a serious downside Cramer didn’t 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.

 

     “If they’re 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,” Malpass said. “It’s a giant sucking sound away from bank equity and away from bank equity capital and from lending. Banks won’t lend.”

 

     Cramer stood firm on the advice he gave on Oct. 6 when he urged people needing a large amount of money for a major purchase within the next five years to divest themselves from the stock market.

     “I hope we dodged it,” Cramer said on Oct. 13. “If 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 don’t see that happening.