The New York Times [registration required] suggests that General Electric Company's (NYSE: GE) CNBC's Jim Cramer has had little effect on Fed Chair Ben Bernanke -- this despite his famous video rant in favor of cutting interest rates.
Cramer is used to having tantrums and getting his way. But his responsibility is limited to providing a unique mix of entertainment and stock touting. Bernanke, on the other hand, has a slightly bigger responsibility -- managing the first global financial panic of his 18-month tenure. To do that, he issued $62 billion of short-term government loans (known as repos) -- accepting mortgage backed securities (MBSs) as collateral -- in an effort to restore confidence to the markets.
Meanwhile Cramer is trying to get Bernanke to bail out his buddies at The Goldman Sachs Group (NYSE: GS), whose formerly eight-figure-bonus-worthy trades are now blowing up in their faces. Simply put, Cramer wants the Fed to grant Wall Street all the upside while shifting the costs of its mistakes onto society. But Bernanke does not want to play along.
I agree with Bernanke's even-handed approach. He is keeping interest rates where they are because inflation is above the 1% to 2% level that the Fed has targeted. And he is adding liquidity in an effort to restore confidence.
But I think there's more the government needs to do -- it has to give the global markets accurate information about who owns the alphabet soup of securities -- such as MBSs, Collateralized Debt Obligations (CDOs), and Collateralized Loan Obligations (CLOs); who has lent money to those securities owners; and how big the gap is between the true market value of the securities and the amount of debt their owners need to repay.
This information is important because it will enable market participants to anticipate how much selling of more liquid assets -- such as stocks -- might be required to pay off the banks. And if there are not enough liquid securities to raise the cash the banks need, it will enable investors to estimate how much capital the banks will lose as they write off their bad loans.
Absent that information -- which is admittedly a very tall order in a world where capital flows into countries with different regulatory regimes than those in the U.S. -- investors have plenty of reason to be jittery. In the meantime, I would be even more uncomfortable if Bernanke decided to give in to Cramer's tantrum.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns GE and has no financial interest in Goldman Sachs.
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Reader Comments (Page 1 of 1)
8-11-2007 @ 10:39PM
Anthony said...
Greed gluttony and the destruction of the American Dream. The unscrupulous investors mortgage brokers, the politicians, wall st. all kept pushing the envelope, is now leaving middle America to pay for it. However, this time there will be too little left of middle America to bail out. The ramifications of this greed has not even touched the surface.
Interest rates should have been rising since 2003 when the R.E market was unconsciously rising, not on principal, but a mirage. A mirage made by people who full well knew that this was going to come apart at some point. The ugly truth is that they won’t lose, “average responsible” people will.
8-11-2007 @ 8:11PM
Wily said...
The toad has ridden the golden 401k far too long. People follow him like he's a guru. Sorry folks, he stepped on board at just the right time.
8-13-2007 @ 7:38AM
Bill Henner said...
My concern was that Cramer's friends at Goldman have allowed him to see more than the tip of this iceberg.
8-11-2007 @ 10:30PM
Als Capital said...
I am loathe to be in a position to defend Cramer's TV presence, but he provides the public with an inside view of a world they would not otherwise have. Cramer is true to this portrayal, because it is no act. Sometimes he appears insane, manic and wild, and that too is no act, nor is it unfair to say the GS groups are much different, albeit less colorful, entertaining, and erudite.
When Cramer basically is clear that he is trying to help his buddies, there is no foul. When he spoke of defending Americans holding a mortgage in default and about to lose their homes, I am not so sure, maybe it was honest maybe it was smoke. I think when a TV personality claims to be defending America, or capitalism, or free markets, but is actually behaving like a lobbyist for a special interest group, then we have a problem. And anyway with the Treasury Secretary being a Goldman Sachs alumnus, there is more chance of Bernanke hearing comments from Paulson than from watching Mad Money.
Regarding your substantive commments about Bernanke's position on monetary policy, I am in total agreement with you. But Bernanke has been long aware of this credit firecracker, and one must wonder why he and no one else moved to stem the activities which led to the problem back in 2005.
Finally, I believe it is incorrect to say that (Bernanke) "he spent $62 billion of the government's money buying back mortgage backed securities (MBSs) in an effort to restore confidence to the markets." My understanding is that the Fed has accepted these obligations as collateral for loans, which are either issued at the current discount rate, or are charged a premium according to risk. The Fed's action was designed to help with liquidity, and is not a bailout of any kind.
for some more comments see:
http://mnrtrading.blogspot.com/2007/08/market-correction-divestment-banking.html
8-12-2007 @ 10:35PM
Arthur said...
I watch Jim Cramer every night and find his analysis of market trends and individual stocks very helpful. Before Cramer I traded about 5 stocks a year. With the insight and information Cramer provides, I trade 100 to 200 stocks a year. Trading stocks has become a very enjoyable retirement hobby for me, thanks to Jim.
So I hope, and I'm sure my e-trade broker hopes, that Jim survives his Rosey O'Donnell moment, and gets back to giving individual investors his unique programming.