Posted on 08/04/2007 10:36:23 AM PDT by ex-Texan
Jim Cramer today angrily called on Federal Reserve Chairman Ben Bernanke to lower interest rates, saying he "has no idea how bad it is out there" in the nation's credit markets.
In his "Stop Trading" segment on Street Signs today, Cramer said the nation's central bank is "asleep" and should immediately "relieve the pressure" on financial firms and the nation's home owners who are facing big increases in their mortgage payments as 'teaser' rates expire. Many thousands will "lose their homes," he warned. "This is not the time to be complacent."
About an hour later, he made a return appearance on CNBC's Closing Bell to soften his initial comments, making it clear that he is not recommending investors sell stocks. He predicted a big rebound for the major stock market averages if the Fed does indeed lower rates, and said he was upset by Bear Stearn's Bear Stearns Co Inc [BSC] "complaining" during a conference call earlier in the afternoon. "I don't want to scare anybody," he added. "The Fed can make this whole problem go away" by lowering interest rates.
Standard & Poor's changed its rating outlook on the firm to negative from stable this morning.
NOTE: There is a MUST SEE Video at the primary link. Why? Jim Cramer losses it on the air.
Lowering interest rates would further harm the valuation of the US dollar, and perhaps cause significant problems for the markets in that it is difficult to tell what foreign investment capital would do. Would they worry that they should pull out now, because the Fed (with their own, much better sources of information) thinks the situation is going to get worse (possibly much worse) if the Fed doesn’t act?
Second, as I stated in the above post, the problems here are structural. They’re directly the fault of the whiz kids who put together these “financially engineered” debt instruments. This isn’t a case of a market becoming liquidity-locked, as we saw in ‘29 and ‘07. There is liquidity out there — it just doesn’t want to come out and play any more until more people get a read on what the market is going to do with all the debt already foisted on the market by these “whiz kids.” Further, the liquidity is ready to go to work — for a price.
And that price is “higher than previously” — ie, what we’re seeing now is risk spreads widening to something more historically normal. The whiz kids in the private equity and hedge funds have become addicted to cheap liquidity to chase every stupid idea in the universe.
Now the whiz kids are going to have to pay up for liquidity and they don’t like that.
Never forget that Cramer is ultimately a hedge fund yahoo. He always has been. I view everything the guy says through the question of “qui bono?” and answering “The hedge funds.”
If that's the case, then the Fed might as well lower rates to their natural market level using the yield curve. That would keep them from punishing everybody for the actions of a few.
They’re not crooks. They’re bankers.
Remember Mark Twain’s definition of a banker:
“A fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
Can’t agree.
One of the reasons why we’re in this mess is that Greenspan chopped rates too low, too fast, reacting to 9/11 and successive events that had hard-to-quantify economic costs.
Interest rates where they are isn’t bad, and they’re low by historical standards. The Fed would do better to stand pat and work on raising standards for lending.
The last thing a central bank should do when the market starts to correct an asset bubble is try to take the pain out of the correction. The home lenders who are going to have problems — it isn’t possible to save them. They bought assets priced unreasonably high in valuation, with debt that is poorly structured. That’s all there is to that, and a Fed cut won’t help them. The Fed doesn’t change any interest rate that is used in the computation of a mortgage rate. The Fed changed only the discount rate, or inter-bank rate. The market sets the benchmark rates for mortgages, and the market has decided to start asking more because the market is learning just how poor a risk many of these borrowers are/were.
A Fed cut would, however, help the investment banks, hedge funds, et al, by giving them more liquidity to play with. This is the last group who should get any help from the US taxpayer. This is the group who must be made to feel pain, and feel lots of pain. Without pain to drive the lesson home, they’d come to expect the Fed to bail them out.
One question before I respond, are you familiar with the yield curve?
Lowering rates will not solve the problems in th long run, I will only make it worse. The market correction needs to happen. Lax standards and cheap money made this problem and a rate cut will be like pumping gas on a house fire.
The problem there is that other central banks are battling high oil prices with interest rates. We need to have coordinated monetary and currency actions, as has been done in the past. Of course, if Bernanke lowers rates as he should, the other countries will be begging for coordinated policy.
According to the yield curve, the funds rate is way too high.
The market correction needs to happen.
OK,let it happen, but keeping rates artificially high isn't a market correction.
I agree with "let this happen." I would have stopped right there. The only ones who need to tighten anything are the lenders themselves, those who survive this. And the buyers. They need to tighten their wallets. Period.
If anything we need to raise the rates a little. Nothing will stop this train wreck now. The sooner it happens the more contained it will be and the easier to come out of. Trying to hold it off with more cheap money will only make things worse.
ping # 50
The Feds charter directs them to preserve the value of the currency. IMHO substantially reducing interest rates would push the USDX from about .81 (now)to the .60s. Everything would go higher—especially energy.
Gold prices are inversely correlated with interest rates but presently are increasing anyway. The Arabs and OPECers are getting more and more money for their oil since the dollar is becoming less and less while India and China are new and demanding markets.
I would not want to be Bernanke. He has a one trick pony—short term interest rates—to fight a double trick war—value of the dollar and the health of the economy.
I would hope he would take the courageous step and preserve the dollar and let those who overspent on homes they could not really afford do the best they can. Real estate will come down—perhaps too hard and too soon—but eventually it will reach true value depending not on interest rate manipulations but actual value.
HOmes are place you live, not an investment. This contrary to what everyone says but think about it. If the dollar deteriorates and drives your home price up, have you really profited? Also, remember that the more expensive the home the greater the real estate taxes.
When this all settles expect a blue state revolt against taxes! And, a red state revolt against inflation! (currency depreciation)
The only reason to raise rates now is to unnecessarily increase the damage and misery. I guess that's what you want.
Nothing will stop this train wreck now.
Then rates should be lowered to be in line with a normally sloping yield curve. There's no point in making the entire economy suffer unless you're a sadist or an arrogant central banker.
You’ve got it right ,,, the models were fine when we were sailing up but the flaws were there all along and the “dumb and dumber” ratings of the CMO pools were built on the sand of “liar loans” , homes sold to illegals (which is why all of the $120k and under properties disappeared over the last 5 years throughout the country) and grossly negligent lending in the form of balloons and interest only negative ammorts ... Whats really going to get hurt are the people that make toys ,, boats ... motorcycles ... big screens... high end stuff that you want but don’t need... and people that are forced to move and can’t hold the current property as a rental or such until the market improves..
I would like to see lenders forced by the buyers of the CMO pool instruments to redefine their programs so that their income does not come from absurd fees at closing but rather from interest over the life of the loan... most originators would write a loan for anyone knowing it would fail a few years down the road as they would sell the bad loan into a package and they already had made their cut...
It is so interesting to watch these Wall Street free marketeers and free-running capitalists suddenly scream for government interventions and bail outs when their greedy Ponzi schemes go awry.
The dirty little secret is that the subprime problem is an illegal alien problem. That’s where all the foreclosures are showing up. A map of subprime foreclosures closely aligns with a map of zip codes where the illegals congregate. The flippers and the boomers trying to finance their BMWs are a small component of the foreclosures, although the elite opinion makers would try to make you think otherwise.
Wall Street and the MSM, the former for its cheap labor needs and the latter for its advancement of the Democratic party, don’t want you to know the real reasons behind the subprime collapse. Like this ritalin-depriven Cramer clown, they are starting their game plan to get the taxpayers to bail out the bankers, the mortgage lenders, and their soon-to-be-evicted-from-their-overcrowed-homes illegals.
Don’t fall for the sympathy pitch. Let them all reap what they sowed.
And for all those morons who say you can’t deport 20 million illegals, this is a great first step.
Hey Neidermeyer - are we the only guys to see through this fiasco? (see post 55)
The yield curve is meaningless here. THe damage is done, the low rates and lax lending standards run up prices and allowed people who should never been able to get homes or as much home as they got to buy. They now find they can not afford nor maintain those properties. It is better to let it happen, have the correction then keep making the situation worse by throwing more money at it. The piper has to be paid.
I have said it before and I will say it again, not Wall Street Banker bailouts.
How is wanting rates to be set by the market a bailout?
Yes, of course.
And I’m familiar with how the Fed has been “puzzled” that what they’ve done in the past with interest rates hasn’t gotten them the results in the yield curve. cf Alan Greenspan’s “conundrum” statements a few years back.
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