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Saw this on digg already - wasn't that quote completely taken out of context? Has anyone else seen the actual video?
Saw this on digg already - wasn't that quote completely taken out of context? Has anyone else seen the actual video?
For better or worse, stock investing is a lot like poker. If you're a good player, you want a lot of bad players in the game to increase your profit. If there's a lot of people out there making their \"buy\" and \"sell\" decisions based on an entertainer's frenetic 15-second analysis on TV, more deliberate investors who actually look deeper into the discussed companies are going to come out on top. Draw your own conclusions.
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Jim Cramer is the Billy Mays of the financial world.
![\"user-pic\"](\"http://consumerist.com/assets_c/userpics/userpic-61787-100x100.png\")
Cramer is a big idiotic flapping head. Anybody who invests based upon his opinions and no further research is not making a carefully considered investment.
I saw the video. That is exactly what he said. He said don't be silly, Bear Stearns will be fine. He is an idiot and a side-show. If he could make money, he would not be on TV.
I like how he routinely gives horrible advice and then the one time he actually gets something right, that's when everyone gets upset.
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Cramer is an obnoxious jackass. Glad I didn't follow hiS advice during the tech bubble All I remember is CMGI! BUY! BUY! BUY! THIS STOCK WILL NEVER GO DOWN! NEVER!
He was telling people to stay put because it is their actions OF taking it out that causes hysteria and compounds the losses.
This is the problem with stock markets. If people weren't so impulsive, these problems wouldn't be so big. People lose more money through the hordes taking out their money because of collective fear of each other's actions than through the bad decisions of the companies to begin with.
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@JustaConsumer: He's a multimillionaire.... Hes on TV because in his mind its a hell of a lot less stressful from what he used to do as a trader. He is very frank on the fact he almost lost his kids and wife because of how into his work he used to be which he had to be in order to be as successful as he has been.
He may be somewhat crazy, but he is not stupid, he has made millions for himself and the companies and people he used to work for when he was a trader.
Looks in-context to me.
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I can't really stand his TV show (like the radio show a lot better), but he's being taken completely out of context. He was talking about Bear Stearns the bank, not the common stock. He wasn't going to drum up hysteria and suggest a run on the banks. This is old news.
Does Fox invoke Godwin's Law by comparing Cramer's comment to one made about Hitler? It might not be a direct invokation, but it's damn close... and it is FOX news...
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@Falconfire: Yeah, he's made millions, but its not as impressive if you look at percentages. From what I hear, his percentages are right with market average, meaning the only reason he made more than the average person is he invested more to begin with.
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Because I'm sure there are so many people who write a letter to Jim about pulling money out of Bear Stearns.
How many people have a retail account at Bear?? Oh, I guess this guy was.
He was wrong on Tuesday, right on Friday...that's the way Jim is.
@Falconfire: Agreed. He was a very successful hedge fund manager who made tons of money. The point of his show is to get the average investor excited about investing and to think about how companies are valued by the market...not necessarily to give buy/sell recommendations. I watch Cramer for the entertainment value alone and so do most people on the street. Do your own homework when it comes to investment decisions.
![\"user-pic\"](\"http://consumerist.com/assets_c/userpics/userpic-117360-100x100.png\")
Not having cable, I can't watch some of those shows, but from the Youtube clip above, Cramer definitely comes out like an obnoxious idiot.
@K-Bo: FYI...
29% for 37 yrs. - George Soros
21% for 40 yrs. - Warren Buffett
29% for 18 yrs. - Eddie Lampert
29% for 18 yrs. - Peter Lynch
24% for 13 yrs. - Jim Cramer
15% for 20 yrs. - Benjamin Graham
@JustaConsumer: If he could make money, he would not be on TV.
Absolutely brilliant insight I'm sure. Could you perhaps explain for us then the chicken-egg problem of how he could have gotten his show in the first place?
The man made millions of dollars running funds before he had his show. Taken in-context his statement makes perfect sense. And even if not, so what? How many other Wall St moguls made the wrong call on Stearns? If it was so obvious to every single other person except Cramer then why was it a problem at all? Guess what, predicting complex financial markets is difficult. Reducing arguments to 2 second sound bites is like trying to get an entire movie across in a 30 second trailer, I think we can all relate to how accurate that is.
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It's stupid to follow his advice. Lots of people watch his show and follow his advice. Everyone goes out and drives the stock price up. That's why I don't follow it
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\"Should I take my money out of Bear Sterns\" can be read as either selling BS (ha!) stock or pulling out instruments created/managed by BS.
Cramer's pathetic denial is just that.
He's to investing as is Paris Hilton is to acting.
@Bladefist-안녕: If you observe that his recommendations result directly in an increase in stock price then why wouldn't you attempt to make money by timing those jumps? Your statement is as much of an oxymoron as saying \"No one goes to that club anymore because it's too crowded.\"
@Trai_Dep: What part of the viewer's question: \"Should I be worried ... in terms of liquidity,\" creates the ambiguity?
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This is inaccurate. Whether you like him or hate him, if you are going to post a story about him and what he said on this issue, please put it in context.
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I love Jim Cramer. He got me into investing, and although I don't really listen to him anymore, I truly believe he wants to help out the little guy. Good for him for motivating people to take control of their own finances. As for his show, you have to take his recommendations (he makes wayyy too many!) with a grain of salt, but his show sure is entertaining.
I don't know one serious investor who listens to a word Cramer says. If you want some day-trade investment advice I would suggest the Gartman Letter every morning. Not taking anything away from what Cramer has done trading, but you can't give good advice without knowing what the investor's portfolio looks like, no matter how awful the stock performs directly after said advice. BSC is/was a historical event that will be studied in B-schools for years and dragging Cramer down for this is ludicrous. If he took the other side it would be argued that he helped ruined Bear Stearns by losing investor confidence. Nothing he says should be taken at face value for an individual investor; this is why the odd-lot theory is still in the study guide for the Series 7.
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@LynchMob52: beat me to his figures, I'd hate to be an idiot that made 24% after fees for 13 years....
@Hossofcourse: You sir are an idiot there are mountains of posts on his site about the tech bubble and not getting screwed by over hyped zero profit tech start ups, its also covered in his autobio that was put out well before he even had a show.
It is utterly irresponsible for people to take him at his word without checking other information. Cramer himself makes this blatantly clear on his show, both through his discussions and fairly common sense textual disclosures that amount to \"all of my picks might not be right, so get comfortable with the company yourself before you invest your own money.\"
At the base of it, he's promoting personal equity investment, as opposed to using professionals. For the small player, this can obviously save on the costs of investment. It is a different take on diversification for those that don't have 5+ 0's in fairly liquid assets.
On the other hand, you could just listen to Warren Buffett who believes that a low-cost ETF tracking the S&P 500 is best...
Moving on...
Wasn't this like weeks ago?
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Ok, some people are absolving Cramer on the basis that he gave advice to someone who as asking whether or not there was a problem with Bear Stearns liquidity, not their stocks. The assumption is that the current crisis with Bear Stearns, the current stock fall, has nothing to do with liquidity.
But that's not what the SEC is reporting. Here is a letter from the chairman of the SEC, Christopher Cox:
Here is what he has to say about the liquidity of Bear Stearns, emphasis mine (this is from the bottom of page 3 and top of page 4; cut and pasted and cleaned a bit):
This unwillingness to fund on a secured basis placed enormous stress on the liquidity of the firm. On Tuesday, March 11, the holding company liquidity pool declined from $18.1 billion to $11.5 billion. This improved on Wednesday, March 12, when Bear Stearns' liquidity pool increased by $900 million to a total of $12.4 billion. On Thursday, March 13, however, Bear Stearns' liquidity pool fell sharply, and continued to fall on Friday. The market rumors about Bear Stearns liquidity problems became self-fulfilling. On Sunday, March 16, Bear Steams entered into the transaction with JP Morgan Chase. These events illustrate just how critical not just capital, but liquidity is to the viability of financial firms and how the evaporation of market confidence can lead to liquidity being impaired.
It seems clear to me that at the root of the crisis is a liquidity problem and that Jim Cramer gave bad advice.
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Guys, seriously, every market pundit mis-called this economy recently. If you listen to them, you do so at your peril. Six months ago, this looked to everyone to be a minor blip.
Kramer was talking about not pulling your money out of Bear, as in don't be stupid and make a run on the bank that doesn't have to happen. And it didn't have to happen. But it did happen because people were worried, and made emotional decisions rather than business decisions. And when all those people pulled their money out of Bear, Bear lost liquidity and had to be taken over. The whole thing wouldn't have happened if people had left their money in Bear.
This was all a run-on-the-bank fabricated by stupid people who made emotional decisions. Traders are famous for that. Let's not blame everyone else, it's the traders who pulled their accounts out of Bear that caused this mess.
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The day after the Daily Show skewering, Jim Cramer spent at length trying to explain why Stewart's clip got it wrong.
Bear Stearns the stock is a far different story than keeping your money AT Bear Stearns.
The recommended selling the stock the FRIDAY before the meltdown. As for people holding their money at Bear accounts (NOT the stock,btw) The money is SAFE and still is.
the biggest problem I see is since when did people start writing into his show regarding the safety of deposit accts vs their stock investments?
Seriously I see both sides of the arguement, but this still rests on the fact how this letter was placed. kinda like asking him if I should leave my money in Washington Mutual CDs. It's really out of context for the show if he and others believed this was regarding their personal accts.
@lemur: You've sort of defeated your own point. His advice was to forestall the self-fulfilling liquidity panic that you cite. If everybody had followed his advice (which was correct) the firm would not have faltered.
@ Front_Towards_Enemy
im Cramer is the Billy Mays of the financial world.
LOL!
![\"user-pic\"](\"http://consumerist.com/assets_c/userpics/userpic-116599-100x100.png\")
Fox news is all bs. You could easily, on a daily basis, take out an ad about the lies they spew on their network. Too bad there's no laws for fake news.
@jtheletter: Because you want to buy low, sell high. Buying at the tail end of his advice would have you not making a lot of return. duh
@hi: Ya thank god for CNN, NBC, and CBS for all their non-biased 100% fact, Bow down for Obama news. woohoo. Screw Fox, bastards.
Cramer is an idiot for the average investor.
@nequam:
1. If someone tells me not to worry about X and then X becomes a problem, why X became a problem has no bearing on whether or not the advice was good. It was bad advice. Why the advice was bad is secondary. Why it was bad may help me decide whether the person who gave the advice was honestly mistaken or just plain stupid but not whether the advice was good or bad.
Note also how Cramer said it would be \"silly\" to take money out of Bear Stearns. It is one thing to give level-headed advice and be wrong. It is another thing to engage in histrionics and label as fools people who do not follow one's advice. Actually, this gives credence to the thesis that Cramer's advice was stupid.
2. The clip that has been linked above shows Cramer giving advice on March 11th and on that same day, according to the chairman of the SEC, Bear Stearn's liquidity fell by 36%. The liquidity problem was occuring at the time Cramer gave his advice.
@K-Bo: Thank you for the link of evidence. So many people spew BS here with no credible foundation for their claims.
Still, the things he said were taken out of context.
LOL that should go into the annals of LOLFed.com. Seems lately there have been way too many finance blunders. I personally can't stand that guy but my husband watches him every day.
He was right, he didn't talk about stocks, he was talking about deposits aka liquidity... your deposits are protected up to 100k under FDIC. Your stocks have no such protection.
if you track down his blogging through the network then you will see he says that he was still right... very weird.
I know a little about finances, and as far as I can tell no one was talking about stock in the cramer clip, in fact, I didnt even think of stock when I saw the consumerist headline (since \"taking money out\" would be referred to as \"selling\", which is more concise and less confusing). No, I wouldnt have taken my money out of bear stearns bank either (unless I had over 100K in there). It wouldnt default, it will be bought/bailed out...just as cramer said. His advice was right. you can keep your money in their bank. I would also be surprised if people with over 100K (in one bank) would take financial advice from TV...so I would say Cramer was right for most people, wrong for a few, and slightly unclear. But not balls out wrong.
now stock is a different story....
P
@lemur: Your earlier comment was all about the WHY, so you cannot now credibly argue that the why didn't matter. If you have a basis to criticize his advice, it cannot be your conflation of the liquidity issue and the stock value.
Your timing issue (that Cramer gave his advice even as liquidity fell) is compelling only in an efficient market, which does not exist. It is the weakest part of your argument.
Once again, the liquidity disaster was caused by people heeding the opposite of Cramer's advice by pulling their money. In any event, it was not a foregone conclusion. BS could have satisfied its customers and forestalled a run on the bank. The fact that they did not do so successfully is independent of Cramer's advice.
@orielbean: Not true, the Securities Investor Protection Corporation (SIPC) has certain protection in the case of failed brokerage firms. In addition, the stock you purchase is your own -- it don't fail with the institution that happends to be the broker
@ironchef: \"SIPC does not bail out investors when the value of their stocks, bonds and other investments falls for any reason. Instead, SIPC replaces MISSING stocks and other securities where it is possible to do so ... even when the investments have increased in value.\"
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Why is this even being posted? This happened a weeks ago. If your investing based on the advice of a TV show you need your head examined n e ways.
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No one seems to rememeber the rest of this quote, which was, \"If anything, it will more likely be taken over.\" Which is exactly what happened.
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I generally like Cramer. A few years ago, I had some spare money (just a few thousand, nothing serious) to trade with, and I subscribed to his daily email thing, which I think was a couple hundred dollars a year. I was actually doing pretty well based on his advice -- I got into Apple at around $25 a share, and it had just about doubled when Nortel, another Cramer pick was suddenly revealed to be involved in some shady dealings. Its stock price collapsed so quickly that I ended up having to sell everything else I had -- including the Apple -- to meet margin calls.
Moral of the story for me was that Cramer is smart, and knows what he's talking about, but is just as easily taken in as anyone else.
@nequam:
SIPC will protect your shares held at Bear Sterns. Even if Bear Stearns disappears, your shares of say AAPL, IBM, etc are protected by the SIPC.
It makes no promise about stock price.
I dont think this article is the correct represenation of what happened. He is being taken out of context.
Bear Sterns is not a traditional bank that takes deposits..besides, Cramer is usually wrong. If you wait a couple of days after his recomendation and then go short,you make money about half the time!
Cramer sucks..can you belive he's almost 65!
(financial noob)
So if I understand correctly, Jim Cramer was saying not to take your money out of accounts held at Bear Stearns, which would be akin to a \"run on the bank\", depression style. This is based on the assumption that the firm is still full of good money managers, and had \"liquidity\" and that your investment was no different than it was before this mortgage deal.
And, that this is different from owning stock in Bear Stearns, which turned out to be a disaster.
So if you were investing with Bear Stearns, and they get bought by JP Morgan, your funds just transfer over, right? And its somewhat irrelevant to you that their stock is now in the toilet?
![\"user-pic\"](\"http://consumerist.com/assets_c/userpics/userpic-210047-100x100.png\")
Amen.
I don't like Cramer - and I agree with the assessment that his show is directly connected to that short-run, gambling view of investing that can so dangerous. But people have to understand: that's CNBC! This is on between shows called Squawk Box and Fast Money that fetishize trading and financial markets. Complaining about finding histrionics and bad calls on CNBC is like complaining that you saw genitalia on the Playboy Channel.
He is perfect for what they are trying to do on CNBC, he has a substantial track record as a top-flight money manager, and as others have pointed out he wasn't STRICTLY wrong. Whether or not his \"brand\" survives seems totally independent of the facts.
@sleze69: Sigh.
no, no no no.
First: If he WAS talking about accounts at bear stearns, then he wasn't any more correct than if he were talking about the stock. Had bear stearns been allowed to fold, the people who had their money in accounts there (of various types) would have gotten soaked. B.S. would have been liquidated and the customers, secured debt holders, unsecured debt holders and investors would have been paid off, in that order. Maybe you would have gotten your money back, maybe not. But the fed deal DID go through, so that lets CNBC continue this nonsense.
Second: The graph flashed during the answer was the stock price for BS. If he wanted to removed ambiguity he should have said, \"Stock in bear stearns and bonds issued by bear stearns seem to be bad investments, but money held in accounts there is probably safe and not worth the transaction costs of switching in order to make it safer.\" Instead he did what he always does, yelled at the camera and announced that BS was fine and any attempts to get money out of there were \"silly\".
Third: This guy makes his money on being a loudmouth and being totally free from nuance. It's how CNBC distinguishes this show from other networks and other shows at different times. It makes people remember the show. Consequently, it isn't in his interest to break character and give sophisticated advice. It is in his interest to spout and yell and spit over news and questions. People like that should get called on it when they are flat out wrong, if only to give more credence to the virtue of compromise.
Right, so my original point hold, Ironchef - he was correct. SIPC doesn't give me value protection, and neither does FDIC. They just let you feel safe that the assets will be there when the shit hits the fan. You'd get your dollars back with quadruple inflation, or you'd get your bluechip stocks back at penny stock prices...
@ludwigk: Eh.
two things (I like lists).
No one aside from the chairman of the fed reserve and the head of the treasury department (and probably not even them) knew about the possible deal with JP Morgan that week. No one knew that a deal would be possible or necessary when Cramer's show aired. So we can't logically defend cramer's statements with the disposition of BS accounts because of the bailout.
Second. BS isn't a bank. Your deposits aren't insured. If Bs went belly up and didn't have the assets to pay out to customers, you would get jack. Nothing.
ludwigk, you are correct. I believe that the Bear name and administrative processes (like bank deposits, how you write checks, who you call for help, etc) should remain the same.
@nequam: a reasonable person holding BS stock, when listening to \"Should I be concerned in terms of liquidity\" would take Cramer's poor advice and hang onto the stock.
Had he said, \"Market panics, while irrational, are known to happen. And this should be a factor,\" then I'd cut him some slack.
Of course he didn't, quite the opposite. Typical mealy-mouthed, post-factor parsing of the word \"is\", once he was exposed to be an inaccurate blowhard. He's a loudmouthed hack, more Vince McMahan than Peter Lynch.
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His target audience seems to be people who are trading daily, not the average investor. The guy's show probably shouldn't even be watched by the average investor.
There's information, and then there's context. If you've got one without the other you're in trouble, no matter what.
Your first point isn't true, which makes your second point irrelevant. Other buyers were already clamoring, which should have served as sufficient confidence for Bear's customers that their assets would be protected. Plus, everybody knew the Fed would step in.
I mean, you're RIGHT. But you're not correct.
@Adam Hyland: Second: The graph flashed during the answer was the stock price for BS. If he wanted to removed ambiguity he should have said, \"Stock in bear stearns and bonds issued by bear stearns seem to be bad investments, but money held in accounts there is probably safe...\"
VERY good catch. Bravo!
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Its not his fault that you rely on someone elses word. If you are going to try to make money in the finacial world dont rely on other people telling you what to buy and sell.
I bought BSC at $6.29 and people thought it was dumb to buy it at more than $2 then I doubled it Monday.
I take back my earlier point about Cramer - the main issue is that you the consumer can't really deposit funds at them - they aren't that type of bank. So anything you owned related to Bear would most likely be in securities/stocks/etc and you would get screwed to the wall as the stock price fell. The hedge funds that had money in Bear all ran away and the price dropped during the retreat.
So Jim is an idiot.
@ADismalScience: Yes, it is true. (If we are referring to the same points). The show aired, and was presumably taped, on march 11. The first news of the bailout was about march 14th, with real confirmation in following days.
if the fed hadn't stepped in, would those other buyers have balked on the deal? who knew what the B.S. balance sheet looked like? Where was the credit going to come from to finance such a deal? How long would due diligence take? How low would B.S. employees and stockholders allow the price to go without some government compulsion? even WITH the actions of the fed, the bailout price has risen 5-fold. How many similar deals between companies or between investors and companies have been scrapped since the beginning of the credit crisis? Clear channel is one example, there are others where availability of credit and cost of credit changed attitudes. And those businesses and deals didn't represent something as murky and unknown as B.S. to potential buyers.
And we can't accept as given the fed's actions. Just because they happened doesn't mean they were inevitable. And predictions were mixed on whether or not the fed would allow an investment bank to fail. Alternatively, the fed could have failed to act in time and margin calls on B.S. could have forced them to be unable to honor withdrawl requests--news of that would have spread pretty damn quickly and made things much worse for anyone involved w/ B.S.
I'm aware of the technical uncertainty that Bear was going to find a buyer, but every bank on Wall Street was salivating that entire week for those assets and knew what was going on. It depends entirely on your perspective, and Cramer has the degree of information connectivity to have understood what was going on. I know I viewed the Fed's actions as inevitable. As did several savvy institutions, which made tons of cash on both sides of Bear's fluctuations over the last two weeks. Look at the trading activity - the market called this.
As a Bear client, I suppose you would have had valid fears. Cramer was attempting to assuage said fears - that's a valid path. Keep in mind, it only becomes a run on the bank if people panic irrationally. Sort of a chicken and egg thing, no?
Oh wait, I didn't see the FOX Business Network thing at the end of the post. Well, sorry folks, Jim Cramer/CNBC wins this one, Godwin's law and all.
@ADismalScience: Right. We could view his action as attempting to prevent a bank run. In that case as an investor I might not be too inclined to take that advice all the time, even though it was urging the socially efficient outcome. If I took his advice and others didn't, I'm left holding the bag. Strictly speaking, that isn't a great position. remember, a bank run is the equilibrium outcome for rational actors if the expectation is that others will withdraw from the bank. If there is a fear that Bear Stearns won't be able to pay account holders, then the irrational position is to remain invested in Bear, not the other way around.
But you are right in a larger sense in that what forestalls those fears is a widespread feeling fo confidence in the institutions and mechanisms at work. In light of that, it is not socially irresponsible advice to tell people to not put money under their mattress.
I don't know if we can come to an agreement over whether or not the market 'called' the bailout early. I guess that depends on your view of the EMH, among other things. What I can say is that if Jim Cramer felt that a coming bailout would vindicate his advice, her certainly didn't voice that opinion on the 11th.
More to the point, we are both attributing subtlety to him where he does not seek it. he makes his niche being blunt and loud. And in this case he offered a broad prediction/admonition that requires a high level of understanding, speculation and nuance in order to defend. We can postulate that he had all of those nuances in mind when making this frothing response, but that he just failed to mention any of the caveats. I choose the simpler explanation.
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If you need someone to tell you how to invest, you should not be an investor. It's just that simple.
When I make a mistake, it's MY mistake. Americans need to stop shifting the blame.
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@Adam Hyland: He did say that someone was probably going to buy BS out in the same breath as his spitty \"don't pull your money out\" comment. And let me re-iterate that I don't particularly like him.
Please someone explain the consequences to the economy if the Fed didn't bail BS out and let it go under.
I equate preventing a bank run to the optimal outcome in a prisoner's dilemma. I've understood enough game theory to be a partial believer in the EHM, but I don't think there are enough rational actors to make it perfect. You're going to get fat tails.
As for the rest of your argument, Occam's Razor prevails. At least in media terms. If they're going to write for 4th-grade readers they're going to rely on 4th-grade interpretations.
The SIPC has a great website and a must read for all investors.
If you have investment vehicles HELD buy Bear Sterns the SIPC insure them. Should a person own stock that is going bankrupt or declining in value such as Bear Sterns -- this is not covered with the SIPC.
@sleze69: Eh. yeah. \"if anything they're more likely to be taken over\" as an aside as the faux rock music started up. I forgot about that. Doesn't exonerate him. :)
As for the consequences to the economy if the beilout didn't happen? There was a bank run in progress on bear stearns. That means that people were taking their money out rapidly. Since bear makes a lot of their profit on highly leveraged investments--they borrow a LOT of money and invest it and then repay the loans, if they have to take money out to pay depositors they can't pay back the principle or interest on some of their very short term loans. And because they are so leveraged, they can't borrow as much money if the size of their initial deposits are so low.
Bear is a relatively large investment bank, part of what is sometimes referred to as the \"shadow financial system\". I don't like that term because it has lots of connotations that aren't always true, but it gets the point across. Investment banks are institutions that aren't faced with the same regulatory control and protection as regular banks. Consequently they are riskier and more profitable than regular banks. A good deal of investment flows through these guys. If depositors and investors had a reason to believe that the firms weren't solvent or weren't liquid (couldn't pay their debts if they wanted to or couldn't move money to pay their debts) then they would take money out.
That money leaves, the investment banks can't take out loans to buy other investments. That means a big chunk of credit (loans) available to businesses is gone and at the worst time, right when there is a credit crunch
That's the basic rundown of what might have happened if Bear had been allowed to fail.
@ADismalScience: we basically agree. remaining invested is the social optimum, but not the equilibrium. And this:
is an interesting take on the EMH, even though it isn't couched as such.
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I don't watch his show on a regular basis and I've never traded on his advice- but his show is entertaining and will expose you to different companies on the couch- doesn't seem like too bad of a deal.
Whether you're taking his comments out of context or not Bear still became more or less insolvent, so I'm not sure that part really matters- he was wrong.
That said- we should expect personalities such as himself to be wrong frequently- if he was always right you could go to the bank get a loan for $100K and retire in a year or two off the returns.
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as of a little while ago (3 p.m.-ish central time) Cramer was standing by what he said, and emphasizing the difference between selling B-S stock or pulling money out of B-S. Just FYI.
@Adam Hyland: That money leaves, the investment banks can't take out loans to buy other investments. That means a big chunk of credit (loans) available to businesses is gone and at the worst time, right when there is a credit crunch
Although I am pretty adept at Computer Science theory, I am pretty inept at Economic theory. Why is it bad if businesses can't get loans? I understand that getting a business loan can be vital to start a business but relying on a loan to survive seems like caveat emptur. Is it bad for the economy if a few bankruptcies \"cull the herd\"?
If I can't get a mortgage, I don't buy a house and rent. If I can't get a car loan, I take public transit (or buy a beater for cash).
@sleze69: Because growth comes from loans. Even established businesses go into some form of debt in order to pay for new investments. Lets say intel wants to make a new fab for a chip. That costs like 20-30 bajillion dollars upfront, but the returns are over a long period of time (and they are uncertain, but lets not dwell on that).
If intel wants to pay for it they have a few options:
1. Sell bits of intel as stock in order to get cash. Obviously, the more you sell the less you have and once you sell it you can't sell it again, so for publicly traded firms, they can't just magic stock into the air and sell it.
2. Borrow money from a bank. Just like homeowners and small business owners, large businesses borrow money from banks in order to do this. This sucks if the dollar amount is REALLY big or the outcome is really risky because real banks (regulated ones) have limits on how many of their eggs they can put in one basket and how risky their investments can be.
3. Borrow little bits of money a lot of times. This is basically what a bond issue is. Intel will sell bonds--an IOU--for the total sum, but each bond will be 1000 (or whatever) each and redeemable on a specific date. Those have the advantage of being easy to split up, so the total figure matters less.
4. Save the money from profits. This intuitively seems like a good idea until you realize that the people who actually own the profits are the stockholders. big companies will pay profits as dividends (small amounts of money paid for owning stock). They will also hold some profits for future needs or use them to pay down debt, but they don't tend to hold LOTS of money, mostly because they feel (usually) that they aren't best equipped to manage money, they are best equipped to make and sell computer chips.
Really, REALLY basically, those are the options.
In order for that new fab to get built, credit needs to get extended. That fab doesn't get build, jobs don't grow. Jobs don't grow, and the economy shrinks because there are more and more people every day (so GDP per capita shrinks, but not strictly GDP).
Some companies, like hedge funds, rely on short term loans very heavily, but that is a topic for another day.
Basically, a BIG (if not the single biggest) determinant of output is investment, and investment is basically driven by credit (well, it basically IS credit, but w/e).
@axiomatic: Meh. You entered into this conversation to make a nonsensical statement somehow alleging that lampooning some financial show for being wrong is the same thing as not accepting responsibility for your actions. No one here is suggesting that Jim Cramer is somehow responsible for their lost wealth and that he should repay them. That's silly. What we are saying is that hyperbolic personalities on TV like that tend to be spectacularly wrong when they are wrong, and this was one of those times.
The opposite side is basically the argument that depositors/investors (not stockholders) in bear stearns would have been protected either by the fed (too big to fail) or by a white knight. That's a reasonable argument.
You didn't make a reasonable argument. You made some sort of broad, pejorative remark that seemed to presume that anyone who invests in a targeted portfolio should be a financial expert. That's a perfectly defensible statement if it were germane and if you chose to defend it. It isn't and you didn't.
@sleze69: 2 other things:
1. None of what I said means that bankruptcies aren't good sometimes. In every industry there is the \"marginal\" company, the company just hanging on/breaking even. Think CompUSA. Given a downturn, they go out of business. It isn't necessarily bad.
2. It is very much related to your ability to get a car loan. Imagine (probably not hard) that you have a wide choice of possible jobs if you have a car, but a narrow range if you have to take the bus. naturally, you would rather have a car and get a job you like. If you are denied a car loan, then your prospects are limited--you are worse off. You don't save up 10k in cash to buy a car, you rely on credit. If you don't get that loan because you are a bad bet, then thats your fault. If your bank doesn't have the money to give you the loan or is scared to give any loans, then you are worse off without having done anything bad. Through no fault of your own, you are limited to a smaller range of jobs and denied the job of your choice.
To expand upon what Adam's saying with respect to the connection of credit to the economy, and to drastically oversimplify concepts that I encourage you to study independently:
The function of Banks is to provide liquidity to capital markets. What that means is that banks are responsible for supplying members of the economy with the funds they need to operate their businesses, purchase goods and services, etc. This increases the general function of the economy by encouraging commerce in all directions. It also helps prompt long-term growth by enabling risky investing in the financial, physical, and human instruments of economic growth: financial capital lik securities, physical capital like land or machines, and human capital like employees.
That's the good news. An economy needs that money to be invested wisely and ingeniously to grow. The bad news is that money can be invested poorly, like all that money banks wasted giving poor-credit borrowers mortgages.
There is a delicate balance struck the amount of capital that SHOULD be available given economic output and the amount that IS. Too much liquidity causes inflation, and too little crimps economic function. Striking that balance is the job of the banking industry, which interacts closely with sovereign nations and their treasuries.
@nequam: Cramer said don't worry about Bear's liquidity but then Bear's liquidity tanked. If you think this advice is good, there's nothing I can say that will change your mind.
Wow, some really bad information floating around this thread. First of all, @lemur: , you're playing up the liquidity angle WAY too much. Here's the question that Cramer was asked: \"Should I be worried about Bear Stearns in terms of liquidity and get my money out?\" His response, paraprased, was: \"No, Bear Stearns is fine, do not take your money out.\" Technically, as you pointed out, he was wrong, as Bear clearly was anything but fine. But the crux of the question was should this person close his Bear Stearns account because of a potential liquidity crisis? And in that regard, Cramer's response was correct because even if Bear had gone bankrupt, that account would have been guaranteed by the government. So Cramer took a shortcut and just told this person that Bear was fine and to leave his account alone, instead of explaining that the Bear Stearns liquidity situation, whether good or bad, had no bearing (hehe) on his account.
@orielbean: You couldn't be more wrong. You the consumer certainly can deposit funds at Bear Stearns. It's called a brokerage account. \"So anything you owned related to Bear would most likely be in securities/stocks/etc and you would get screwed to the wall as the stock price fell.\" Wrong again. You could own the stocks/bonds of just about any company, in your BEAR STEARNS ACCOUNT, and the value of those stocks/bonds would NOT be affected by the fact that Bear meltdown.
One minor quibble: those assets were not backstopped by the Fed until AFTER the run on the bank. Absent Fed or buyer intervention those accounts would have become worthless.
That's why this event was such a positive for markets. It restored the confidence of individuals with brokerage accounts at Wall Street firms with liquidity issues. Firms like Citi, Merrill, Bear, and E*Trade are very thankful for the Fed's swift action here. As are their clients.
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so a majority of the hate here is either because the guy A) Knows his stuff and B) has made a successful career out of it. *rolls eyes*
@BeFrugalNotCheap: Do you go to some special school to miss the point so completely? Or is that a terrible attempt at sarcasm?
His show strikes me as a televised pump-and-dump scheme...
CREDIBILITY is like VIRGINITY you can only lose it Once...hey Cramer you are the Johnny Holmes of stock picking.
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Everyone forgets about the letter he read in which he was answering. \"Should I pull my money out of Bear Stearns?\" It wasn't, \"Should I sell my Bear Stearns STOCK\". Although I can't stand his on-air persona, he was right on this issue and this is incorrectly getting over-publicized. Actually, it shouldn't be publicized at all.