Thursday, August 3, 2017

Ten Years on...

Ten years ago today, Jim Cramer lost it on the air.  It was August 2007, and he was apoplectic about how complacent the Fed was about credit markets.  "They know nothing!", he yelled.

At the time, I thought, "Oh, there go the clowns on CNBC clowning."  I knew nothing.  In hindsight, this - both in content and in tone - was the most prescient public comment of the entire affair.  I give Jim Cramer mad props.  He earned my undying respect.  He was absolutely correct.

Watch the full rant: Cramer's 'They know nothing!' from CNBC.

Meanwhile, the Wall Street Journal was saying this:
Credit panics are never pretty, but their virtue is that they restore some fear and humility to the marketplace....
It's tempting to blame Wall Street and other bankers for all those bad residential loans, and they are paying the price now. But they were also lending into a housing asset bubble fed by easy monetary policy. Risky mortgages always look better when home prices look like they'll never decline. 
Current Fed Chairman Ben Bernanke was along for the Greenspan ride, so he's hardly blameless. No doubt he'd love to play the hero role now, signaling easier money this week.
According to Bernanke, he read the Wall Street Journal article, but purposefully avoided seeing the Cramer segment.


  1. Yes, when in doubt, the problem is always easy money.

    Here is a funny one:

    The Heritage Foundation gives to Hong Kong a very high 93.7 rating on “property rights,” in their economic freedom index.

    Thus, we see right-wing think tanks embrace restrictive property zoning as entirely consistent with economic freedom and property rights.

    House prices in HK are the highest in the world.

    It is all that easy money.

  2. from a pending post:

    If Hong Kong were a one-off, perhaps the former crown colony would only be instructive. But more likely Hong Kong is a warning, a harbinger of life in many developed nations.
    All 10 of the world’s least affordable housing markets are in Hong Kong, Australia, the United States or Canada, reports the most-recent Demographia International Housing Affordability Survey. They add, “There are 94 severely unaffordable markets, with 36 in the United States, 33 in Australia, 11 in the United Kingdom, 7 in Canada, 6 in New Zealand and the one market in China. Singapore, Japan and Ireland have no severely unaffordable housing markets.”
    Meanwhile, in Great Britain the middle-class is boxed out of housing markets nearly everywhere in the entire nation.
    What unites these disparate high housing-cost nations and economies, with different cultures, policies regarding home mortgages, and monetary policies?
    They all run chronic current trade deficits and they all zone property development.
    Singapore, something a cousin to Hong Kong, runs trade surpluses, as does Japan and Ireland. They have affordable housing.

  3. But then Cramer said on March 11 2008 'buy Bear Stearns' and his reputation was destroyed.

    1. Ouch. Big ouch. Still doesn't come close to unraveling his cred from August 2007, though.

    2. He didn't say BSC was a buy, he said don't pull your money (deposits or investment assets). I'm not aware of any deposit holders taking a haircut on BSC.. so he was right, no?

    3. I think you may be right about that particular quote, but I do think there are some "gottcha" clips of him telling callers to hold onto their Bear stock in early 2008. But, even with that, we've got two instances. (1) screaming publicly and boldly that the emperor has no clothes and (2) basically taking the position that the market price of an equity is somewhat accurate shortly before everyone realizes it isn't. That's still nets out far into the plus column. Jon Stewart pushed him on this at the time.

      I wish he hadn't been so contrite when Jon Stewart was dressing him down about this on the Daily Show. That was, admittedly a tough time, though. Whatever Cramer might have done in his days as a trader, Stewart clearly didn't know his ass from a hole in the ground and he was just feeding on the vague frustrations that were in the air at the time. Of course Stewart's "gottcha" on Bernanke was that they dared "print money" at all, even after the collapse.

  4. More thoughts:

    Heritage Foundation's favorite five nations, the most free in economic-business terms (as defined by Heritage):

    Hong Kong
    89.8 +1.2 4

    88.6 +0.8 5

    New Zealand




    In three of the five nations, you do not want to be in the middle class anymore---you will not be able to afford housing. They are Hong Kong, New Zealand, and Australia.

    The other two nations have affordable housing in terms of their middle class: Singapore and Switzerland.

    You guessed it; Singapore and Switzerland run trade surpluses, while Hong Kong and NZ and Australia run trade deficits.

    Does it get any more obvious than this?

  5. Shiller grazes the target…

  6. "Credit panics are never pretty, but their virtue is that they restore some fear and humility to the marketplace...." People love morality tales. It's like the Old Testament: Whenever something bad happens to the Hebrews they are sure that God is punishing them because they had strayed from the straight and narrow path. Actually there is no evidence (so far as I know) that the market as a whole, as distinct from selected individuals, is ever lacking in the appropriate amount of fear and humility, as well as the appropriate amount of greed and confidence. No evidence, only hindsight bias.

    1. Yep.

      It's interesting how Tim Geithner totally understands this, and repeatedly inveighs against it. He calls it "Old Testament Thinking" too. But, the force is so strong that he has to compromise against it so that many of his policy choices and his justifications for them are still based on it.