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On today's Stop Trading! segment on CNBC, Jim Cramer said Bear Stearns (NYSE: BSC) should be keeping its mouth shut until it is ready to start buying shares. The fact that headlines will be interpreted poorly means that it shouldn't speak until it's behind. Cramer started screaming louder than he's ever been on recent TV that Bernanke and Poole and the Fed is asleep and they are not aware of how bad this situation is out there. He said the Fed should be lowering the rate at the discount window. This is a different kind of market. Of the 14 million mortgages in the last three years, almost seven million were in teaser or ARM or non-traditional mortgages. All of those homes are potentially at risk in his mindset.
It looked to me like CNBC's Erin Burnett looked a little taken aback by this today, and it's hard to blame her. We just needed Vince McMahon and a Smackdown to rival today. This meltdown in subprime still has a long ways to go before all the dust settles. This has already toppled some firms and we won't know where the real bottom is until after the fact. The ugliness isn't just about financial and private equity no longer able to borrow and deal...it's much worse than that. The impact of this looks like it is going to end up being far worse than the derivative implosions in the bond market from 1994 to 1996. The difference is that Joe Q. Public isn't seeing their treasury notes lose as much.
Cramer's screaming bloody murder....literally
Posted Aug 3rd 2007 3:40PM by Jon Ogg
Filed under: Bad News, Television, Private Equity, Bear Stearns Cos (BSC), Housing
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Reader Comments (Page 1 of 1)
8-03-2007 @ 5:33PM
Annie said...
Okay, everyone, breath in deeply. Stretch. Reach for the sky. Now remember why you invested in something beside real estate or mortgage companies.
See you next week.
8-04-2007 @ 10:20PM
Will said...
Cramer is just plain wrong on this.
Yes, the collapse of the credit market is hurting tens of thousands, if not millions, of people. That sucks. That thousands of people are loosing their jobs and/or their homes sucks.
But the problem is not the Fed. The problem is the markets that were drunk with greed during the housing boom. Where is Cramer's ire for the mortgage companies giving loans to people without an income? Where is the ire for the banks that gave loans to people who clearly couldn't pay for it (ARMS, interest-only, etc...)?
The banks, the mortgage companies, and yes, the people who took out loans far in excess of their ability to repay NEED to loose their jobs, their profits, their homes. A moral hazard that lets people believe that no matter how stupid you are, when it comes to the mortgage industry, the government or the Fed won't let anything bad happen to you CANNOT be allowed to take root.
Cramer's solution that liquidity must be returned to the credit market quickly sends the exact wrong message. A massive credit bubble was allowed to grow - encouraged by people like Cramer - to unbelievable levels. To lower interest rates would only encourage that bubble to return.