Cramer Pleads for a Fed Rescue

the turmoil in the bond market is not caused by high interest rates anyway, rates are still quite reasonable.

If the fed were to do what Cramer wants, then the additional money supply would drive up inflation, and hence long interest rates. It might become easier for people & corporations to get short-term and variable-rate loans, but 10-15-39 year loans at fixed rates would quickly become *very* expensive.

Barry,

I was in Paris Monday, and we got CNBC in the hotel. I turned the tv on when we came back around 4 to start getting gussied up for dinner, and I see Cramer’s on pretty much non-stop.

I’m not a regular CNBC watcher, so I don’t know if that’s normal, but my knee-jerk reaction was “oh shit, this is gonna be a ‘fun’ week.” The man appeared to be sweating through every layer of clothing he had on 30 minutes after the bell.

I know you write for The Street and probably have some relationship with the guy, and he seems like a good person, but this is the same man who capitulated in ’98 and wanted to be longer and stronger in March of ’00. You’re as photogenic as him? No disrespect to him, but given that your as photogenic as he is, do you just need to start being spectacularly wrong to get off Kudlow duty and on to hanging out with Pisani and the gang?

You have to think that if Cramer is right, that all of the top investment bankers (the top insiders) are crapping their pants right now, we may only be scratching the surface of how serious this might become. Having said that, Cramer does have a flair for being overly dramatic!

A couple/three pts to add – Cramer starts by castigating the Bear CFO for going wimp and then outdoes him by several orders of magnitude ? On nat’l TV ?! No cojones. Also – as mentioned – interest rates are low and IN FACT the discount window is open (always). Banks can borrow anything they want UNDER the Fed Rate right now, today. As the lack of diligence in the sub-primes is showing this wasn’t/isn’t about rates it’s about good business practice.
Before we get too carried away with Schadenfreude though how BAD must it be for Cramer to completely loose it like that and violate every principle he’s supposedly supported (markets are good, downsizing good, need discipline, etc.).
If he’s doing that then there’s a lot more problems under the covers the Institutions aren’t telling us or themselves about.

A couple/three pts to add – Cramer starts by castigating the Bear CFO for going wimp and then outdoes him by several orders of magnitude ? On nat’l TV ?! No cojones. Also – as mentioned – interest rates are low and IN FACT the discount window is open (always). Banks can borrow anything they want UNDER the Fed Rate right now, today. As the lack of diligence in the sub-primes is showing this wasn’t/isn’t about rates it’s about good business practice.
Before we get too carried away with Schadenfreude though how BAD must it be for Cramer to completely loose it like that and violate every principle he’s supposedly supported (markets are good, downsizing good, need discipline, etc.).
If he’s doing that then there’s a lot more problems under the covers the Institutions aren’t telling us or themselves about.

Cramer is now more TV personality than money manager. Overblown bad acting, but great TV.

As a former hedge fund manager, Jim probably still has many friends and contacts that are losing it all right now. The fed isn’t asleep. They just aren’t interested in bailing out the speculators. I agree. Let them sleep in the bed they’ve made.

A bald faced idiot he is!

wow i missed it on friday..thanks mr ritholtz……now i know why the market fell almost 300 points friday…cramer is the joe granville,robert prechter,abby joseph cohen of our time. actually there’s no way out of this..we’ll either have a depression or hyper inflation.buy campbell soup or home depot or lowes,they sell wheelbarrows.

Barry,
would you please explain to KRAMER when you see him that a FED cut will do jack shit for homeowners who are now stuck with resets that they can’t get out of?

We have much tighter lending standards, no liar loans, no 125% LTV,no piggybacking and on and on in combination with falling house prices on a national level. A year ago it might have mattered, but at this point the tide has gone out. The poor homedebtors can’t qualify for the loans, and even if they could, the home is worth less today than a year ago. The FED and Street made a fine stew, and now they must eat it.

Oh ya, also tell KRAMERICA that the dollar sits at $80.14, and unless a run on the dollar would somehow help this situation, he and his brothers and sisters on the Street are screwed.

Jimmy boy is much too smart to lose it like that. Seems to me that he was not trying to get the fed to come to the rescue – but simply to panic the market. And successfully so, at least for Friday. Notice that the meandering market went straight down after that interview. So if Jimmy boy had been short….

His rant was amazing….but too early. It will get bad out there (remember 1998?), but it is not there yet. The Fed will have to cut rates eventually, but now would be premature given inflation and continued growth of the economy and employment whether we believe the gov statistics or not.

The credit markets will probably freeze up further, and when the big banks start having liquidity crises (like 1998), then it might be time to consider cutting. Bernanke is between a rock and a hard place on this one because of the dollar and foreign investment.

Cramers outburst makes him look like a fool. If he had waited a week or two or three, he might be right on the mark. Either way, good for Erin for keeping her composure. I would have walked off screen.

Can anyone explain why he’s going after Bill Poole? Bernanke and the FRB I understand. But why Bill Poole in particular?

Because Poole came out and said it’s not the job of the FED to bail out Wall Street when the animal spirits got the best of the them. Can you imagine anyone saying this to Paul Volker 27 years ago?

Money is simply a commodity like all others. Artificial demand creates inflationary excess; when the demand reverts to the mean, those areas targeted most by inflationary expansion will suffer the most.

Real national wealth comes from producing goods and services, not from leveraged buyouts, mergers, and speculative risk.

Parties can be a lot of fun for awhile, but there comes a time to put the cork back into the bottle, sober up, and go back to work.

It is now Monday morning, and the hangers-on are fighting hangovers and having trouble concentrating.

I love, LOVE the fact that CNBC has inserted the Mad Money disclaimer at the end of that clip after the fact. (It was not there last night.) JJC is referring to senior bond traders and managers talking to him “off the record.” How is that not a disclosure violation? Its not like he can Chinese Wall that info and parse it from his public recommendations. The other point – without getting to “they know that we know that they know…” is JJC could be getting played by these guys. Or is that too machiavellian…?

A moron – but an entertaining one – for about 15 seconds max

http://www.youtube.com/watch?v=cYPtCmdFCrc

Here is my analysis on why Cramer is behaving this way.

He has been a super bull up until now. He now sees he was wrong and that the market is going down regardless of what the Fed does. He needs a scapegoat. So he pleads with the Fed to cut rates knowing they won’t. When the market corrects, inflation is gone and investors are in tears – the Fed will then cut. Jimmy Cramer will then claim he was right for demanding a rate cut way back in Aug 2007.

In other words, he is setting himself up to be the Monday morning quarterback post correction. “Don’t blame Cramer, blame Ben B! Booyah!”

Bluzer asked:

“Can anyone explain why he’s going after Bill Poole? Bernanke and the FRB I understand. But why Bill Poole in particular?”

Probably because Poole went on record recently, indicating that the Greenspan Put is no more:

“‘If the market believes that the Fed is always primed to adjust policy, then market participants will spend more time trying to second-guess the Fed than trying to understand what is happening to business and household behavior,’ Poole said in a speech prepared for delivery at the University of Missouri.

“Poole said he was speaking only for himself, but his views add to the growing sense that the Fed under new chairman, Ben Bernanke, is trying to move away from the so-called ‘Greenspan Put.'”

http://www.marketwatch.com/news/story/fed-wont-ride-rescue-upset/story.aspx?guid=%7B265C021C-7EA7-401D-A60A-724EA859E758%7D

I wonder if Cramer has a market position with his past employer, Goldman Sachs? It’s falling fast.

This person is way too emotional. I guess his money bets turned the wrong way.

He mentions the homless – Wall Street does not give a rat’s a** about the homeless or folks loosing their homes. Its about MONEY and the fees generated to syndicate the mortgages.

Odd Question: If a pool of mortgatges in a CDO runs to zero – ie. no takers – is the CDOs value zero and by extension the mortgages zero? Do these folks now have a mortgage free home?

At this point, I don’t know why anyone would be surprised by anything that Cramer says. When Kudlow goes on the tube calling a crash, that will be news!

…and when the fed intervenes, with lower rates, or by printing money, aren’t they just increasing taxes? Aren’t they just decreasing the income of all those who have their savings invested in fixed income bonds and the like? And decreasing the value of those savings through inflation on top of it?

couldnt agree more Barry! If anything, the fed should:

1. Adjust statement and remove tightening bias.

It seems this credit mess will spread and growth will not come in as excessive. I thik the fed should be balanced right now in their bias. Any move to pump liquidity in the system will be the wrong move and I think will have a negative effect on tradable markets as the street interprets that as a sign things are much worse than what appears on the surface right now.

Right on Barry!

Don’t know if anyone else feels this way but it seems that Goldilocks Kudlow is pretty much ranting these days also?

Cramer wants to protect the common man??? Great, because I’m one of them. Got bid out of the over-priced housing market when my wife and I wanted to buy 2 years ago (newly wed then), we’ve been living in a small apartment and saving our cash like mad ever since, and in another year we’ll be ready to buy in a hopefully sane market and without a mortgage.

Screw Jim and his self-serving rant to get the Fed to lower rates and finance his own success. If the Fed lowers the rate, saves the market and creates another housing price pop, then maybe my wife and I will be the ones to capitulate. Why should we work our butts off 24/7 and save every penny possible instead of spending our paychecks-plus if there’s never a need for accountability in this country? (I’m still disgusted by G.W.’s relatively recent comment congratulating China on transforming itself from a nation of savers into a nation of spenders. [It’s a budding form of financial slavery. And it’s wrong.])

Barry and the rest of you posting comments thus far are breath of fresh air. Thank you!

Cramer has his viewers so levered in high beta stocks that he is probably nervous someone will show up at the studio with a gun and needs a scapegoat to shift the focus. Kinda like the Argentine Junta picking a fight with the British over the Falklands. Amazing how this bozo calls for a Fed bailout when his “$80 goes to $120” stocks fall back to $70. Imagine his performance when the consumer gives up the ghost and we go into recession and the dominoes really start to fall (China, anyone?). They will carry him out in a straight jacket…..Gold bugs are just waiting for a bailout. Gold at $1,000? What will Larry Kudlow say? This is Gentle Ben’s “Volker Moment” during the market’s “Minskey Moment”. Hope for my children that Ben is a Volker and not a Greenspan. Tough love for the long term! Cutting rates so that hedge fund managers can keep their $70 million yahcts is just plain WRONG! The poor lumpkin homeowners who paid too much will lose their house no matter what the Fed does…

The Fed should do what they believe is good for the economy, and not worry about the pain for speculators.

Greenspan lowered the Fed Funds rate to much when he sent it to only to 1%, and then kept it low too long. That heavy dose of excessive liquidity caused the overheating that required the tight policy of the last 12 months.

I believe that the Fed funds rate should never have been lower than 2% and that should have been only for a few quarters to ease the financial scare after 9-11. On the increases, they also went too far. I suppose they felt they needed to offset the previous overdose of liquidity. One overdose to counteract the previous overdose.

A more modest increase in rates would have kept the yield curve normal and not choked things as tightly. Of course, the workout would take longer that way, and inflation and long rates would be higher today. But the dislocations would be smaller as things played out more slowly.

Fed intervention in the markets is like a drug. Overdosing is bad on both the stimulus and depressive side. Once again the Fed has followed one overdose with another.

Imo the reason Cramer is behaving this way is that per his contracts with the media companies, he can only go long, never short.

So in a downward market he is totally irrelevant, the best he can do is tell you to go to cash, which does not garner high television ratings/website views.

Imo he was better when he could go both long and short.

While not to the level of Cramer, Paul McCulley of Pimco was almost hysterical Friday morning on CNBC.

Very out-of-character for him.

Quote: “While not to the level of Cramer, Paul McCulley of Pimco was almost hysterical Friday morning on CNBC.

Very out-of-character for him.”

I think it is time to re-read Panzner’s book. Something in Denmark is rotten.

Hey, I just lost a fortune trying to help a Nigerian prince get his rightful inheritance (apparently, his uncle got a hold of my banking information and hit my account repeatedly). But Cramer helped me convince the Feds to bail me out with a super-low interest loan. Now I’m doing better than ever and I might just be able to finally help that prince get his inheritance. Miracles really do happen!

Thanks Jim Cramer, for making sure that my poor judgment didn’t adversely affect me. Risk is just for the other guy.

Hey Cramer!

It’s ‘the genius of capitalism’ at work.

You and your buddies screwed up, now take the consequences, you posturing putz.

This ain’t no socialist welfare state. No one is going to bail you out and kiss the boo-boo so it’ll stop hurting.

Let me get this straight-

When Cramer’s CEO buddies take a factory, a going concern, and ship it to China for a fatter bonus, we are supposed to salute it. Its the creative destruction of the free markets. Yippeee!

But when Cramer’s friends make unwise deals in mortgage securities and lose their jobs, they call on the Fed to fix it. These guys probably rail against welfare recipients but want their own welfare program for multi-millionaries to guarantee their lifestlyes.

There was little concern for defending the standard living of the middle class during all that outsourcing. (Cramer used to do these rants on how great it was when people lost their jobs.)

Now we are supposed to approve of massive gov’t intervention to support millionaires…. why? …. because its the free market?

As the late Milton Friedman pointed out, a market economy is not a profit system, it is a profit and LOSS system. The guys on the street like the profit part, but they don’t seem to like the loss part.

Regardless of whether you think this rant was appropriate/inappropriate or just plain funny- you have to give credit to the man for having balls for “expressing” himself on TV.

Cramer is da man!

You are joking right? The man said last year that adjustables were no big deal, and they weren’t for him and his chums at the time. Getting ass kicked by the market has a way of changing one’s tune. He’s a paid shill who deserves condemnation for no conviction and no character.

The Fed overdosed us with easy money, and lately they have been overdosing us with tight money. The yield curve is the best barometer of this. It’s past time to just go neutral with the monetary policy.

Quote Vollmer: “It is not too much to ask our Fed to admit their own mistakes and face the reality. Kuods to Cramer for being a straight arrow.”

Are you saying it is Bernanke’s responsibility to point out the idiocy of Greenspan’s captaincy? Sorry, but in the upper echelons of management, things such as that are simply not done.

I assume you mean “kudos” to Cramer – but for what – for begging for fed intervention to reinstitue the bubble/Ponzi finance scheme?

Bernanke needs to concentrate on the value of the dollar – recession/depresson can be overcome; hyperinflation kills.

No matter how you put it, the Fed has been wrong in stating that the subprime mess is contained. IT IS NOT. The Fed has to admit their wrong judgement and face accountability.

I have speakers a little better than PC OEM speakers, but can’t understand a single word anyone’s saying in this video.

Mike wrote:

The Fed has 4 responsibilities and one of their responsibilities is “maintaining the stability of the financial system and containing systemic risk that may arise in financial markets”
—

Indeed that’s true. And “stable markets” means that buyers and sellers need to be freely able to chose at what price a transaction takes place.

If that transaction price is 95% less than their agreed-upon transaction price of 6 months ago, so be it.

“Maintaining the stability of markets” does not imply that it’s required to have buyers for Yahoo stock at $240/share, toothpaste-laced-with-herbicide, or loan pools made up of 6X-income, no-money-down, no-documentation ‘liar loans’.

Chuck,

The secondary mortgage market is frozen. There are no bids for anything labeled as ABX, CDO, and CLO. High-yield corporate credit yields have spiked dramatically, widening spreads and increasing the cost of borrowing for companies. As a result, companies may spend less and this could slow our economic growth much more than expected.

But the Fed is sleeping at the wheel…

The Fed needs to do something, make a statement to come the panicky markets down.
They should say something like we monitor the markets closely (it is their responsibility) and ready to add liquidity if needed.

But, Mike, there is no systemic risk, no danger to the systemic banks. Greenspan said so:

“Perhaps the clearest evidence of the perceived benefits that derivatives have provided is their continued spectacular growth. The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions, which was so evident during the credit cycle of 2001-02 and which seems to have persisted. Derivatives have permitted the unbundling of financial risks. Because risks can be unbundled, individual financial instruments now can be analyzed in terms of their common underlying risk factors, and risks can be managed on a portfolio basis. Partly because of the proposed Basel II capital requirements, the sophisticated risk-management approaches that derivatives have facilitated are being employed more widely and systematically in the banking and financial services industries.

As is generally acknowledged, the development of credit derivatives has contributed to the stability of the banking system by allowing banks, especially the largest, systemically important banks, to measure and manage their credit risks more effectively. In particular, the largest banks have found single-name credit default swaps a highly attractive mechanism for reducing exposure concentrations in their loan books while allowing them to meet the needs of their largest corporate customers.”

See, the Fed has already fixed the problem – by not regulating or interfering in the derivatives markets.

Regardless of whether you think this rant was appropriate/inappropriate or just plain funny- you have to give credit to the man for having balls for “expressing” himself on TV.

Balls, eh? Reminded me of a skit I saw back in the 80s on some comedy show. Reagan says to Thatcher “I love a woman with Balls! Can I have mine back now?”

Winston Munn,

Are you saying the Fed should wait for high blown depression before cutting the interest rates?

Similar to the Fed, Japan’s MOF was sleeping at the wheel in 1980’s and you know how they ended – late rate cuts and 20 years of deflation.

P.S. Are you a communist (Chavez/Castro sympathizer) or a terrorist (Al Qaeda sympathizer) or a democrat (Bush hater) or an opportunistic short? Just curious…

Are you saying the Fed should wait for high blown depression before cutting the interest rates?

Similar to the Fed, Japan’s MOF was sleeping at the wheel in 1980’s and you know how they ended – late rate cuts and 20 years of deflation.

P.S. Are you a communist (Chavez/Castro sympathizer) or a terrorist (Al Qaeda sympathizer) or a democrat (Bush hater) or an opportunistic short? Just curious…

Mike:

The Federal Reserve is trapped inside a box of its own creation, thanks to the policies of Alan Greenspan.

Could this get out of hand? Yes, easily, and a full-blown financial crisis is a potential. But it has yet to occur.

There are two risks present – the value of the dollar and the economy. Interest rate cuts would do little other than reestablish the climate that created the problem in the first place; however, a falling dollar poses unparalleled risks, such as abandonment of the dollar by the global communities.

Until systemic collapse occurs, what is there to fix?

As to what I am? Read the U.S. constitution and you’ll have a solid idea of what I believe. (By the way, you can search all you want but you won’t find there any Leo Strauss philosophy or mention of the unitary executive, but you will find a lot on separation of powers and self rule.)

Anything else?

Mike, how old are you?

Cramer and the Market tend to overestimate
the freedom of the Fed to cut interest
rates.

I (different Mike) agree with Winston Munn
that “The Federal Reserve is trapped inside a box of its own creation, thanks to the policies of Alan Greenspan.”

One day Greenspan and his policies will
be held in low regard. That
day may arrive sooner than I thought.

Is it just me or are Cramer and Erin an item?

Actually the more I think about a nice spike down the more I relish the fact that a lot of haughty, masters of the universe, Wall Street pricks are gonna get a dose of reality that most of us little people already understand well. Gravity and Zero.

I love the smell of roasted master of the universe in the morning….it smells like….

I haven’t seen the clip and I’m not going to watch it, Cramer however has lost all credibility in my eyes. I used to think he was quite cool. It was only a week or so a go however that he was saying that there is absolutely nothing to worry about. The issue with this guy is that his ego has just got too big, he runs a long only fund of some sort and he doesn’t want to be seen to lose mony. Comps for his website go down in bear market, as interest in stocks goes down. Hes basically turned into just another chear leader for easy mony politics, and unfortunately none of these guys live in the real world.
I’m sure hell get his wish however eventually, dollar be damned.

I dislike Cramer and very much enjoy the guys who tweak him on thestreet.com like Rev and Barry. However, he’s right.

I also would love to see the Street firms take some big hits for their role in peddling crap asset structures. But the damage to the *system* is likely to be enormous if Bernake and Co don’t step up soon. That is an opinion, and reality may not quite turn out so dire, but playing chicken with the financing system for American homeownership to go after speculators and enforce the lessons of risk and return is not in the Fed’s mandate. In fact, it’s plain stupid.

How many AAA mortgage bonds traded this week? How many *Agency* backed bonds? How many *deposit institutions* tigntened their mortgage offerings, pulled major products and raised *rates* to consumers by 1.00% or more?

I like comeuppance as much as anyone. But if the Fed decides to bet that this will continue to be limited to the players who “deserve” to take the hits, they are playing a dangerous game and taking a risk with the national economy they are not qualified to assess. And that is just as irresponsible as the players who helped feed the frenzy that led us to this spot.

Stormrunner: your assessment would be quite correct, but I was simply trying to answer Mike’s question. He seemed to think I was either Al-Qaeda, a communist, or – worst-of-all-worlds – a democrat.

It does get tiresome to hear the flag-waving and calls for patriotism from those who haven’t a clue what the constitution says. I was trying to clear up my political bent for Mike – which might be best described as a Ron Paul/Jack Kennedy Republicrat.

I have no bias – I hate both parties equally.

The meltdown looked legit to me — and I reached for the Sell button. Not everything mind you, but with Jimmy foaming at the mouth I figured more cash couldn’t hurt. Theatrics are one thing…this was rubber room stuff. Odd that Maria B. left after the close and Kudlowette Francis took over. Guess Maria beat feet to some exec to call for Cramer’s head. CNBC is now officially Reality TV and it tells me that this market is completely off the rails. Monday could be a bullet train to the Land of Suck. Help me Jebus.

Mike wrote: “I just got the impression that you were biased and you had no problems with the Fed raising rates 17 times from 1.00% to 5.25% non-stop and causing a recession, but you were against the Fed easing and giving some relieve to hard working Americans.”

It’s hard to know where to start if these are indeed your beliefs. All you are encouraging is the proliferation of debt; debt build-up is not wealth creation. And it is not the up to the private bank named the Federal Reserve to raise or lower rates – they don’t have that power.

It may surprise you to know that the Federal Reserve does not set rates. They set a target rate, and prices are continually in fluctuation, trading above and below that rate. To truly affect that target rate, the Fed has to act, either buy buying or selling treasuries, or raising or lowering the reserve requirements.

As for the concern about the working American, well, ex-Fed governor Bob McTeer says it better than I ever could:

“The main fallacy in monetary theory and policy is the confusion of money and wealth. … Money — and financial assets easily converted to money — may not be wealth for society as a whole if the production of goods and services has not kept pace with claims on it. Early spenders may have some success, but inflation will dilute the buying power of others. The bottom line is that real wealth has to be produced; it can’t be printed.”

You see, Mike, without real national wealth the U.S. worker is doomed to Brazilianization anyway – pumping money into a broken system won’t fix the system.

It’s like being dependent on the water flowing through an old and leaky pipe – you can increase the flow of the water and give the illusion that the pipe is sound, but it is still leaking, nonetheless, and the inexorable flow will continue to eat away at the weakest points, creating more leaks, requiring more and more water until….either the pipe breaks open completely (deflation) or a tsunami is required just to provide a trickle to use (hyperinflation).

Somewhere along the line, the wise and prudent thing to do would have been to fix the pipe.

stormrunner:

I had a good friend in Las Vegas who relayed to me a message his mother used to tell him. “Pete,” she’d say, “There is what’s right and there’s what’s real. You have to deal with what’s real.”

Reality is we have a central bank and a fiat money system. Regardless of what I believe to be right, my comments have to be in the realm of how to deal with current reality – that is why there are at times apparent contradictions in what I say, as I don’t always clarify if speaking philosophically about what I believe to be right verses the pragmatic what to do under the current situation in this current reality.

And then a lot depends on whether I’ve taken the blue or red pill, of course.

…..Somewhere along the line, the wise and prudent thing to do would have been to fix the pipe.

Holding the discount rate steady is not fixing the pipe it is continuing the charade.

The FED created an artifical demand for money by making policy insanely accomadative, now I get it, that you can’t force banks to lend or people to borrow, but eventually the lure of easy money– well you know the rest, this is just social engineering 101. And the nefarious part of the whole thing is that these first users of the new money were really not imprudent and benefitted accordingly. The population was being conditioned to believe that prices only go up causing a panic to buy now because saving was indeed futility. Only the central bankers know when they will close the spigot beginnning the deflationary phase of the inflated asset class, this time housing. This was intentionally targeted at the public at large not just the elite investor class. this is criminal.

Stormrunner:

To really grasp what happened under Greenspan’s watch requires an understanding of not only the Fed but the bond markets.

If you will look back, what you fill find is that all those emergency rate cuts were actually timed after drops in 6-month T-bill yields, so if you look at a chart, the Fed appeared to be chasing the yield of the 6-month T-bill. T-bill prices were spiking, causing yields to plummet. The oddity is that the long bond (10-year) was not following suit. It stayed high with little demand.

If you consider that the money flowing out of stocks and into bonds was a “flight to quality”, then it would make sense that this “flight” aticipated a rather short duration of economic downturn, which would explain why the 6-month bill got all the love.

Now fast forward to Greenspan – he has been chasing the T-bill rate down, and now has a target rate of 1% – so how does the Fed protect a low target rate? By lowering reserve requirements and buying treasuries. Buying treasuries means creating new money. The birth of liquidity.

So, as an investor, if you can borrow at 1% from the Federal Reserve and get 6-8% from the still high 10-year bond, what are you going to do? That’s right. You will gleefully rob from Peter and get paid by Paul. The dollar carry trade was born – and as reasoned by the Fed, the extra liquidity forced the price up on the 10-year bond, forcing yeilds down, and voila’, a housing boom was born.

See, that is the problem the Federal Reserve has now – to reduce liquidity and protect a higher rate, treasuries must be sold – which means attracting buyers with…higher rates…and draining liquidity from the markets.

To protect a lower rate, the Fed has to buy treasuries, creating more money supply, diminishing the value of the dollar when it is now near historic lows.

I don’t think there is any choice but to allow the asset inflation to deflate without interference.

It appears quite simply to be a Gordian’s Knot – not even the bond market can be much help, for whichever way yields are priced in the market, the Fed has little leeway to move off its target without compounding the problem, one way or another.

cramer should give us a monthly update on his economic analysis. Maybe call it the beige rage book

Eclectic

The beatle thing thats pretty funny..

At this point I don’t care Green Back’s, Gold standard, fricken digital Tally Sticks anything but financing nonsense by evicting young families from their homes.

I’m tired of asshats suggesting proponents of responsible capitalism are somehow unpatriotic. But, Mike goes a few steps further and somehow puts Winston in league with a terrorist organization? Unbelievable. That’s unbelievably offensive.

Winston, I can’t believe your restraint. Kudos to you.

Eclectic

The beatle thing thats pretty funny..

At this point I don’t care Green Back’s, Gold standard, fricken digital Tally Sticks anything but financing nonsense by evicting young families from their homes.

Personal responsibility comrade? A young family making 15K should not be buying a 750K house even if they have the ability to do so. “If it feels right/good” ain’t gonna cut now anymore than it did during the run up to the Great Depression. Excesses must be wrung from the system.

” While not to the level of Cramer, Paul McCulley of Pimco was almost hysterical Friday morning on CNBC.

Very out-of-character for him.”

Cramer is more refreshing than McCulley – at least Cramer doesn’t take himself entirely seriously and sort of knows he’s an emotional idiot. McCulley on the other hand is a insufferable windbag of poorly recycled ideas, unnecessarily contorted paradigms, and bad writing. Not surprising at all he’s in the same panic camp as Cramer in this reaction.

Winston Munn,

How do you see the Fed keeping the rates high and causing a recession (that you are advocating) can help to create “national wealth in the U.S.”?

“All you are encouraging is the proliferation of debt”

I am sorry Winston, but you are encouraging the proliferation of debt via a recession.

How do you think our country will be able to service our national debt and pay for all the social programs, infrastructure, etc. if the US economy goes into a recession (that you are advocating)? The government would have to borrow more (putting our nation deeper into debt) to compensate for low tax revenue (negative GDP = extremely low tax revenue)

Moreover, nobody is saying the Fed should cut rates down to 1.00%. The Fed should cut rates down to more reasonable and neutral 4.00-4.25%. It was a mistake to raise the rates too fast and too high, and now the Fed needs to correct this mistake and to cut the rates down to more reasonable levels.

So we cut while the rest of the world is raising? Tanking of the dollar will be dead ahead, and it’s why our trading partners are already dropping their peg of the dollar. We sit @ 80.14, so be ready for the ramifications of your cut thesis when we go to fund our deficit. Good luck!

Mike, Once again — how old are you?

Old enough to know that 5.25% is low historically speaking, and really quite accomodative?

Old enough to remember 70’s stagflation where every week prices were up another 5% at the grocery store?

Old enough to remember when you could get 12% on a CD if you were inclined to actually *save* money?

Lastly, what ripple effects would you anticipate from an emergency rate cut to 4% on the overnight rate short/med/long term?

Please share your vision of what will happen vis-a-vis the dollar exchange rate, international investment in US debt, and overall inflation. These effects will likely be negative and large yes? And these negatives would be offset by what? A couple more quarters of positive earnings by…?

Sorry to be so unpatriotic by asking these questions…

Idaho_Spud, aka Florida, aka Mike u r a pr*ck,

“5.25% is low historically speaking, and really quite accomodative”

Accommodative??? Give me a break! How do you define “accomodative”?

How old are you to know that the current environment and rates have nothing to do with extreme environment of 70’s stagflation? Simply because we had high rates during 1970’s does not mean we should have high rates in 2007.

“what ripple effects would you anticipate from an emergency rate cut to 4% on the overnight rate short/med/long term”

Nobody says it should be one rate cut. Where did you see me saying it should be “an emergency rate cut to 4%”?

As far as the impact on USD, please read my post above yours.

Idaho_Spud, aka Florida, aka Mike u r a pr*ck, – -,

Do you have the balls to use your real name?

As far as the inflation, it is a function of rapidly growing global demand for oil and commodities, and a function of Washington stupidity and their ethanol policies. It has little to do with “accomodative” interest rates (“accomodative” according to you).

dukeb

your reducing this to semantics? 80/20 conventional loans have been industry standard in the banking system for 4 or more generations. If your going to advocate this Debt-Money system some reasonable expectation for inflation especially for as core of a purchase as is housing must be maintained. The FED absolutely failed here, not only in maintaining a reasonable price level but actually creating the environment that propagated the escalation. I’m not talking about an isolated elevation in prices like maybe Malibu or Pacific Palasades this was state wide in the worlds 10th largest economy. To ignore that the FED created this to finance a questionable war is irresponsable.

John Maynard Keynes, The Economic Consequences of the Peace, 1920:

“Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society (destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.”

Let’s keep our heads in the sand we get the representation we deserve.

Kaos,
Even if the Fed bails out “The Street”, do you really think it will help mom & pop get back on their feet? It seems you are for th dumbing down of America. Were people reading their mortgage apps and related materials before they got them?

keep an eye on the amazon sales rank of greider’s book about the fed. jumped 6,000 places yesterday to today. it’s rank is probably trade-able.

er…”its” not “it’s”

Mike, if that’s *your* real name…

LOL you may call me “Idaho” or “Spud”.

I am also not the same blogger as “mike is a pr*ck”. (Although I am beginning to agree with his/her assessment).

A five percent market correction and reining in “Lenders Gone Wild” is not the end of days. We are entering a recession that has been deferred by easy money. More easy money will defer it further, plus tank the dollar worse than it already is.

Which of course will make our treasuries unpalatable to foreigners, so who will then finance our national/personal debt?

Weak dollar will push imported petroleum up, killing consumers.

All to allow some wild-ass gamblers time to exit their hedge funds?

Mike aka Cramer, we see through you.

Mike wrote: “What is your definition of “responsible capitalist”?

Is it similar to that of Winston – the Fed can sharply increase rates and keep the rates high until we get a recession or depression (pleasing the terrorists, communists, bush-hates, shorts, etc.), only after millions of people lose their jobs and homes (and Winston’s short positions appreciate) the Fed can cut rates.

P.S. Self serving greedy short, next time put your real name instead of hiding your identity. I know who you are and I am sure that other folks can see your real identity.”

Mike, while I will defend your right to free speech and to hold dissenting opinions, I would appreciate it if you did not make assumptions about what positions I hold or misappropriate my comments.

I never defined “responsible capitalist”, yet you write a misunderstood definition and attribute it to me. I have not suggested the Fed raise its target rate. I have only stated that it is not appropriate to lower that rate. Big difference.

Then once again you imply a connection between terrorists, communists, bush-haters with someone who disagrees with your views, and you place me into that category by assuming I have short positions.

It is no business of yours whether I am long or short, but for the sake of civility I will tell you that at the present I am all cash. If opportunity presents itself, I will go either long or short without hesitation, because trading the market is not about patriotic flag-waving but about making or losing money. It is totally impersonal.

There are no political implications of being long or short. As Don Corleone so aptly put it, “It’s not personal. It’s only business.”

You may also want to research Keynesian economics, in which government interventions are only to be used in extreme cases; it is a bastardization of those theories that advises constant intervention and micro-managing the economy.

Better, though, is to investigate the Austrian school, where you will find that increasing the money supply (monetary inflation) will eventually lead to price inflation (with a time lag), and that inflation is a hidden tax that steals wealth and prosperity.

The real concern of harm to the average American is wealth-stealing effect of inflation.

Eclectic wrote:

“When banks, in the face of competitors who were pursuing the folly, had no choice but to meet the competition by offering similar reckless financing, then they were forced by the folly of others to pursue the folly themselves.

That is the definition of the herd instinct in mankind. The herd instinct is what you should blame, not the Federal Reserve OMC.”

A response:

Simply because lemmings fling themselves over the cliff does not mean that wise old bulls should do the same. There is always a choice. This is what separates the successful long-term business from the also-rans: the ability to chose to properly manage their businesses in both bad time and good times. They prepare to successfully weather inevitable economic downturns while not overindulging during economic upturns. As Mr. Miyagi said in The Karate Kid, “Balance is the key.”

When absolving the central bank’s role, you are not factoring in the asset inflation created by the infusion of cheap money, creating artificial demand, and that demand’s effect on housing prices. The utilization of creative financing was due to the rapid rise of prices that eliminated many would-be buyers. ARMS, 80/20 loans, and the various other exotic financial schemes were a direct consequence of asset inflation, caused by monetary inflation – a direct product of the central bank’s actions to protect a much-too-low rate for much too long.

So although there is truth in the herd mentality argument, the is also very real culpability for the origins of that beast within the walls of the FOMC conference room.

Bubbles happen with or without easy credit. Speculative fevers create their own momentum, and ultimately collapse from their own weight. Monetary policy can be neutral or significantly affect this. Obviously, easy credit is a strong accelerant, and in 2002 the Fed added fuel to the fire. We would have had an asset run up even if the Fed had followed a neutral policy. Of course, it would have been much less severe.

The Fed intervenes in financial markets by manipulating interest rates. Lowering the Fed funds target rate to 1% was excessive manipulation. The economic dislocations from this were significant (and predictable).

Then the Fed reversed its manipulation, first by reducing and then removing the artificial stimulus, and then by manipulating the market to artificially drive the target rate above the free market and neutral level.

They did this rapidly, pushing the target rate up at every meeting. They did not stop until they hit 5.25%. This is well above what a free market rate would be. If the Fed stopped manipulating the market, the free market would likely settle around 4.25% for overnight funds.

The extra 100 bps is the artificial result of the ongoing manipulation by the Fed. It is slowly choking the credit markets and the economy. The trouble we are seeing now is the inevitable lagged effect from the restrictive monetary policy. Restrictive policy is destructive to the economy, just as the excessive stimulus was destructive.

First the Fed overshot to the low side, and then they overshot to the high side. In my opinion they generally do more harm than good.

I think the Fed should strive to stay close to a neutral rate (the natural market driven rate) at all times except in times of a temporary emergency.

Eclectic

An 80/20 conventional is 80% financed 20% down over 30 years at a fixed rate no reset, how is this house flipping. By allowing unmitigated fractional reserve banking, irresponsable loans were placed to individuals in these same neighborhoods @100 LTV these generally being financed 80/20 with the trailing 20% being a piggy back. When these loans fail and they will fail, the comp of the auctioned property will instantly wipe out the conventional buyers equity. Now if he needs to relocate for any reason, well you get the picture. As a banker / broker it is unethical to lend to people with no ability to repay just because you can (generate money out of thin air) inorder to aquire fees and commissions. They not only destroyed the idiots but also the people with a real ability to pay. I quess this is your idea of economic “survival of the fittest” this is my idea of theft. Its just a numbers game, yeah some of these people will be able to stay in the effected areas others will not, the Central Banks fully understand this.

Winston Munn,

“Mike, while I will defend your right to free speech and to hold dissenting opinions, I would appreciate it if you did not make assumptions about what positions I hold”

Assumptions??? There is no need to make assumptions, please read your prior posts; it is in black and white.

Winston Munn said: “It’s no big deal if we go into a recession… Why scream for the Fed to intervene in a normal business cycle?” “Think optimistically – a good old fashioned recession and bear market would create tremendous buying oppotunities”

And now you are insulting our intelligence and making statements that I made assumption about you being (you know who you are Winston)…

Acme, a.k.a. Idaho_Spud, a.k.a. Florida, a.k.a. Mike u r a pr*ck, a.k.a. – -,

Could you kindly try a little bit harder and post something more intelligent? Thanks

In addition, why are you afraid to use your real name instead of hiding behind these pseudonyms?

Eclectic:

Know doubt both views contributed to the debauchery.

Storm,

I likened you earlier to a dung beetle as a compliment to you, because of the dung beetle’s relative consistency, purpose and magnitude of effort.

I realize now I was giving the dung beetle far too much credit.
—

I stand on all prior comments.

Eclectic — yeah, I know and agree. My post was (mostly) in jest. And thanks for reading!

Idaho_Spud, a.k.a. Florida, a.k.a. Mike u r a pr*ck, a.k.a. Acme, a.k.a. – -,

Of cause you agree with “Mike u r a pr*ck” and all other vulgar profanities that you have posted here (under different pseudonyms) as the substitute for arguments, because YOU ARE THE SAME INDIVIDUAL. (I am sure that other folks can see it too)

“We don’t accuse one another” BUT you have just accused me of “silly McCarthy-ish”; in addition to all other vulgar profanities that you have posted above.

Estragon,

I do not see USD going much lower after 4×25 basis points interest cuts secondary to the EU (many EU countries have been already complaining about strong Euro vs. USD) and Japan not allowing it.

Therefore, I do not see it as an issue. We had 1% interest rates and strong USD five years ago.

I believe Winston being a constitutionalist sees the angst of my position. My skin is thick, too thick to be concerned by anything, I suppose, with the exception of spouting nonsense. The FED that is protected so vehemently blew it. Anyone would also be hard pressed to explain how,
An 80/20 conventional which is 80% financed 20% down to (avoid PMI)over 30 years at a fixed rate, no reset, how this is house flipping. And exactly why these people deserve to take it in the shorts.
There is absolutely no way to predict when the liquidity spigot will be closed. If the American people are going to allow private banks to control the currency they can at least control it. I honestly believe they have failed miserably, I feel there is a growing contingent that thinks likewise. The rest will likely be business as usual, the constant continuing erosion of the middle class, till the intellectuals amoung us stand up, regardless of how well they personally have been able to operate in the system.

too thick to be concerned by anything, I suppose, with the exception of be “accused of” spouting nonsense.

I stand corrected.

Cramer’s a whiny asshole… period.

Is anyone surprised?

Never did watch his lousy show, never will.

Storm,

I obviously blew by your 80/20 discussion, but it’s of no real consequence to my own discussions of the core problem that faces the mortgage industry today.

Nite Nite all. I think I’ve put this one to sleep.

No Storm…

…..involuntary mortgage-slaughter.

“Won’t someone with more technical expertise than I pull the entire video off of CNBC and upload it to YouTube”? – Is that a polite way of saying won’t someone with less on the line than I commit copyright infringement of a potentially criminal nature? I’m sure you were assuming we’d all recognize it as a veiled criticism of how draconian modern (c) law is, and not a solicitation of a criminal act, but still…

Cramer is such a clown. How people can watch that guy is beyond me. Its like watching wrestling – just loud snotty nonsense.

His record speaks for itslef. He has failed MANY times and gotten lucky a few.

Although I am educated and gainfully employed, I have no saving and have never owned a single share of stock in my life. I rent, and probably always will, because I am unlikely to ever afford to own my own home within any reasonable distance of a source of income. I watch CNBC once in a while and its like another planet. I don’t know anything about the fed or stock or bonds or any of that stuff. All I know is this: if there is a big meltdown of any kind, there will be a taxpayer-funded bailout. That’s just the way it works. I’m not cynical, I’ve just seen it over and over and over again. Finance guys who justify the millions and millions of dollars they make during boom years because they are “risk takers” or “find hidden opportunities” or whatever, are suddenly victims during the downturn. In the end, all their ‘risk’ seems to involve nothing but upside. At least from this lay person’ perspective.