1. Private equity debt. This is the least-of-our-problems debt. It's very factored-in but confusing because it is "Tier Three." It gets that title because of its liquidity and its tendency to hang on in a company's balance sheet, the so-called "hung deals."

One reason the market's unlikely to take out August's lows is that this chunk of credit, a huge problem in August, has now receded. In fact, that's a positive for those companies that wrote it down.

The reason Goldman's having a big quarter now is that in the third quarter, it wrote down these pieces of paper to 85-90. Now that the deals are done, it looks like it's going to get par (trader-speak for 100). Goldman's quarter ends in a couple of weeks and this will be a huge source of upside for the firm.

Most companies kept this stuff written at par, which was dangerous when it was actually at 85 and 90 and should have been marked down. But now it's a smaller part of the problem, depending on unclosed deals that most likely will be closed. (If you want to worry, think Tribune (NYSE: TRB) (Cramer's Take).)

2. Structured debt. This stuff is just awful. We have no idea what is in it; we just know it's billions of dollars of disparate mortgages of varying variety and vintage. I have not heard a single bank be candid and honest about what's in its collateralized debt obligations (CDOs).

That's because, as Citigroup (NYSE: C) (Cramer's Take) explained last week, unless you managed the CDO -- that is, unless you put it together -- it's too opaque to the holders. Citibank and Merrill (NYSE: MER) (Cramer's Take) took it on the chin with these and will again because we don't know what they're worth.

The resistance to writing down structured debt paper is based on the fact that most of the debtors involved have continued to pay on their mortgages and the ratings agencies have stuck by their AAA ratings and designated everything okey-dokey -- even if it isn't.

This was the debt that Bank of America (NYSE: BAC) (Cramer's Take) detailed last night. Many of the firms that have CDOs are hiding behind structured insurance that the insurers may not be able to make good on.

3. Direct mortgage, either issued or purchased. There are two classes of this debt: first lien (the actual mortgage) and second lien (a home-equity loan). These are unpackaged loans and they are either good or bad and are not mixed up with some silly instrument that has both.

This is the problem that Washington Mutual (NYSE: WM) (Cramer's Take) has. It's also the problem that E*Trade (NASDAQ: ETFC) (Cramer's Take) has, except there it's exacerbated by the fact that E*Trade bought a lot of really bad second-lien mortgages in an action that has put the whole franchise at risk.

Mortgages made before 2005 are considered "seasoned" and fine. Mortgages written between 2005 and the first half of 2007 are dangerous, and when you add in the people who took second loans (home-equity loans) to pay for their first loans, the effect is disastrous. Any bank that has these is most likely understating its losses, and I include Countrywide (NYSE: CFC) (Cramer's Take) in that group.

Unlike CDO paper, these loans are defaulting right now. Many of the institutions that have this paper are hiding behind private mortgage insurers that may not be able to make good.

Why is Goldman doing so well? Because it passed this tripartite test with flying colors. It has private-equity loans that are rising in value from the previous quarter. It is short CDO paper using the instruments that allow it, including 2005-2007 CDOs -- which is brilliant and something most firms didn't bother to do because their businesses were too big to hedge. (Listen to Citi's CFO Gary Crittenden on the post-Chuck Prince conference call if you want to hear this alibi writ large.)

And Goldman was never in the mortgage origination business. That's why the notion that Goldman has a lower multiple than all of the other guys is just ridiculous. It is why I believe that Goldman belongs at $300 a share, but I wrongly predicted it would get there this year.

So, put every financial institution through this three-part test. If it has too much of any one kind of credit, use this strength to sell. We are up 5% since the bottom. That's a decent place to begin selling if you are still long any of the tripartite flunkers.

Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Goldman Sachs and Citigroup.

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