The only reason for a rally would be if the government read Vikram Pandit's internal memo about how well Citigroup (NYSE: C) (Cramer's Take) is doing and recognizes that banks are actually solvent and they should be treated as such.
Pandit's stunning statement that the quarter has started really well -- and remember, we're in March -- gives the bulls hope that the Treasury and the president -- please don't go Mr. Bush on us and delegate everything -- might not confiscate the bank and give it to the people of the United States because it doesn't need to.
At the end of the week there will be hearings on mark to market. Marking to market is kind of like the rights of short-sellers right now (lots of good debates raging on this Web site about that). We should demand mark to market when we are not going to wipe out the banking system. We should demand that shorts shouldn't lose their rights but not when the shorts are about to wreck the banking system, which is now crazily based on common equity and not Tier 1 capital.
I know, sounds frivolous, we should always be rigorous. Right? Sometimes, though, enforced rigor gets in the way of what could be an actual honest reporting of events. We all know that if you marked your stock portfolio to the lowest stock in the group -- Heinz (NYSE: HNZ) (Cramer's Take), say, if you owned Coca-Cola (NYSE: KO) (Cramer's Take) -- you could argue that's nuts. But the "rigor" of the moment says that is right. Of course, we know better, because there is a posted market. But there isn't a posted market for a lot of real estate. That doesn't mean, though we should post to the worst house on the block, the one that just sold, even though the others don't have to be sold. Yet that's what we are doing to Citigroup, Bank of America (NYSE: BAC) (Cramer's Take), JPMorgan Chase (NYSE: JPM) (Cramer's Take), Wells Fargo (NYSE: WFC) (Cramer's Take) and all of the others, including General Electric (NYSE: GE) (Cramer's Take).
The administration should use those hearings as a catalyst to bring together the Federal Reserve, the ratings agencies and the Treasury to say "enough is enough," and take control of the situation. Right now the agencies are taking all of the "AAA" ratings, which were wrong, down to "CCC" ratings, which also are wrong. Of course, the consequence is that merchandise must be dumped that shouldn't have to and no one has the capital to step up and stop the free fall or the charter to take advantage of the mispricings.
Meanwhile, the regulators are forcing recognition of losses that might not be losses two years from now if we cool it. What's the point of accelerating the debacle? Is it because the stocks are down? In this case I think the stocks are down because they are so easy to break because there is no uptick rule and because the margin requirements on the shorts are out the window. You may think they are down because all of the banks are insolvent but that's just empirically not true.
The government must take control of the system, not the banks. It should tell its regulators to stop forcing the marking and forbear. It should tell the ratings agencies to stop the willy-nilly downgrades and suspend their ratings systems until the agencies can figure out what the heck they are doing. I would investigate every one of them for their actions in this era. It should bring back the uptick rule and bring back the old margin rules. They should act like grownups and take control.
In reality, I believe nothing will happen. I think Treasury Secretary Timothy Geithner won't do anything, the president will be off doing good social agenda deeds, and the banking system will collapse, sending us to 5320.
But if they actually understand that they have the power to stop this nonsense, just like they had the power to stop the euthanizing of Lehman, we can put a stop to the tyranny of the shorts, the regulators and the ratings agencies and make Citigroup the last nationalized bank, instead of the first one.
Jim Cramer is co-founder and chairman 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 JPMorgan Chase, Wells Gargo and General Electric.
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Reader Comments (Page 1 of 1)
3-10-2009 @ 10:17AM
Steve said...
"We have a great future as an independent company." ~ Bob Steel, Wachovia CEO, September 15, 2008
“I am disappointed with our current stock price and the broad-based misperceptions about our company and its financial position. I don’t believe it reflects the strengths of Citi.” ~ Vakram Pandit, Citigroup CEO, March 9, 2009
Fool me once, shame on you. Fool me twice, shame on me.
3-10-2009 @ 1:17PM
paul s said...
Cramer, a house is worth what someone will pay you for it. It doesn't matter what block you are on. The house is taxed at the accessed value. Wether it will sell above or below the accessed value is determined by the buyers, not the sellers, not the government. Everyone has their reasons. That is the problem with this world. If the banks need to sell assets now there may not be any buyers. If they wait sell them at a later date, value them now at that make believe future price, it still won't matter. The buyers do not believe anymore. You think they will all snap out of it and start believing and buying the stock again but like Buffet noted: the tide has gone out. We all saw who were the ones swimming naked. You truly believe your fellow Americans are just a bunch of suckers with amnesia.
3-10-2009 @ 1:21PM
Iridium said...
Sure we shouldn't value a group of assets based on the lowest value of an individual piece but you should vale a group of assets based on the total current value, not what they can be worth in the future.
We are in this mess because we allowed investors to borrow against future gains in order to pay for the acquisition of new assets now. This never should have been allowed. An asset is worth what it is worth at the exact time that passes every second. Even if you do not sell it is still only worth what it would be worth if you sold it at that second.
We allowed people to borrow against the future value of their house in order to purchase a new car or take a vacation. We built in price increases that were unsustainable. How would the majority of Americans buy a house if the median price was $500k and the median salary stays at $40k. It only stands to say that either wages must increase by a massive amount or home prices must fall by a massive amount.
We built our economy on the false assumption that all assets will continue to rise in value indefinitely. That is why we have a boom and bust cycle rather than a smooth economy that just works. We allow financial liberalism to create and destroy mass wealth in a cyclical pattern. Each time swinging further and further in each direction. Eventually the string breaks. Our goal should be to balance the economy. Instead we create such massive imbalances that we can never hope to get the thing even ever again.
We have built inflation into the economy when it does not have to be there. The fed can try and control it as much as they want but the fact is that inflation is inevitable due to our rigged financial system.
We must borrow more to pay more which leads to higher costs that must be passed on. We can't break the cycle and we go further into debt. Our economy would have collapsed long ago had it not been for the massive spending by the federal government. The government took on the debt our economy could not. Now we have hit the point where the government can no longer take on any more debt without endangering the system itself. The only recourse is for the government to take over the economy in order to generate its own wealth to satisfy debt obligations.
Although we don't feel as if this time is worse than the Great Depression, it is only the false sense of security that our government will be able to help us that keeps the country afloat. The feeling didn't exist before the Great Depression. If you look at the real value or the government today you see that we are in a far worse place. Our economy has no way to pay back its debt. Personal debt is higher than personal worth. How do you get out of that?
See the problem is the system itself. It is the banking and stock system. The system of interest on borrowed money. You will always owe more money than was ever created in the first place. The rules that define it define and end game of complete economic destruction. From day one the system has been working to the end where total debt outweighs total economic production. At that point you have a total collapse. That point is coming very soon, in fact it may have already passed.