Cramer: 'Dysfunctional' Banking System Puts U.S. 'Totally' at Risk of 'Great Depression No. 2'

businessandmedia.org ^ | September 11, 2008 | Jeff Poor

[cw35]

What do you think a gov’t backstop is as it relates to Bear?

[Defiant]

Very interesting comment. Thanks.

[SteveAustin]

The problem that the politicians don’t understand are the massive “derivative books” these large banks and brokerage firms hold. There are untold trillions of dollars of financial arrangements that aren’t in the form of “loans”. These derivative contracts go into jeopardy when a big shop like Bear (or now Lehman) goes down. These financial arrangements in the form of derivative contracts are crucial to the operations of many of our businesses across the US.

If I’m a manufacturer who has the interest rate on my $100 million dollar loan capped or fixed for 10-years by virtue of a Lehman SWAP, what happens when Lehman is no longer around to honor that as counter-party?

This whole thing has been on the verge of collapse now for the last 6-12 months. More to come.

[Defiant]

Thank you for a very informative post.

[hiredhand]

I agree with you. I probably didn't get my point across well enough the first time. Silver is valued as a metal, as well as coinage. Usually, there's a bit of a spread between the two values. Paper is also valuable as just "paper". But given a choice of trading plain silver as opposed to plain paper, I'm "reasonably" sure that people are going to choose silver.

[underbyte]

I like the summary in the link below. What got me was the similarity to today’s events - the drip, drip of bad news that went on for years. Discounter Woolworth’s was one of the few retailers to make a profit in 1932. Change the name to Walmart and a few other name overlayed over events and you would be surprised at how much of a similar track we are on.

http://www.futurecasts.com/Depression_bottom-1932-1933.html

How bad can it get? below link is one Argentine’s experience. I do not think myself that it will get as bad a Argentina. The fed will print it’s way out, if they are lucky let everything deflate a bit then kickstart the economy with inflation and the dollar will be half or 1/4 of what it’s worth today. Inflation people get used to it. The dollar dropped 30% since 2001 ala Greenspan’s cure for dot.com bust, 9/11. They call it the soft landing. I am all cash and it’s out of the country and out of the USD. If it all works out I am OK if it does not work out at least I’ll have a shot at preserving something.

http://www.backpackfever.com/2008/01/21/survival-after-economic-meltdown/

[Defiant]

That is something we can definitely agree on. A paper note has intrinsic value of a small fraction of a penny. A silver coin has value of something like $17 per ounce in the world market, which I think is mostly based on its intrinsic value as a metal for jewelry and for industrial uses. I don’t know of many, if any, countries that use silver as a unit of exchange. Some part of that value may be due to residual psychological impact of silver’s use as a coin metal. In other words, if people think that in hard times, silver will be needed to buy things, then it may raise its value over and above what its actual value is. But with that caveat, we agree.

[ex-Texan]

Mr. ‘Pump and Dump’ is bloviating again. Cramer is just pushing for more bailouts. He made his megabucks as a highly paid shill for the big banks. Now he is just repeating the same old refrain: ‘Who needs money ? Banks need money! More money, more money and more money for meeeeeeee.”

[1stMarylandRegiment]

Cramer predicted bank of America would report massive write-downs for the 2Q08 earnings report. He said on Monday, July 14th, "You might as well call it Bank-rupt of America."

The CEO was forced to hold a news conference and declare that BoA did NOT need capital and would NOT cut the dividend.

Of course, BoA reported POSITIVE earnings of $0.41 per share the next day, maintained the dividend and did not raise capital. It subsequently rallied 40% in a week. Cramer is a despicable, irresponsible, fear-mongering ass.

[EVO X]

Large banks have to be more policy driven. It is the only way they can manage risk.

Well... It is pretty clear they aren't going to let some hillbilly in fly over country tell them how to run their banks..

[hiredhand]

I read the recount in that second URL a couple of months ago...sent to me by a buddy of mine. It's a MUST READ, and should reset any American reader's expectation of what too many regard as an "adventure", or a "camping trip".

[hiredhand]

You worded that much better than I did. Thanks!

[Notary Sojac]

The Depression is no longer part of the memory of living Americans, and we are not the better for it.

Posted by Notary Sojac, FR member, Dec 17, 2007.

[underbyte]

Yeah it hit me with the thought that most of the US might not be that bad...

Then again

I am 5 miles outside of the card carrying sanctuary of New Haven CT. I good times we have mild spillovers of crime from the city. What happens when the entitlements through inflation or cuts fail to subsidize the drug habits after a week or two? It would take just a few days for things to get out of hand.

[RatRipper]

It is not just a matter of judgment of many individuals who are employees of the bank, but of administrative controls and measuring and controlling various types of risk created throughout vast branching system as it is aggregated for the organization as a whole. They have to be able to steer assumption of risk and manipulate the magnitude of each source of risk to meet their tolerances and needs.

[TigerLikesRooster]

Cover-up and spin are falling part in earnest. The denial is no longer sustainable.

Full weight of truth would be quite a shock to many hitherto uninformed folks.

[hiredhand]

I "think" that Section 9 housing occupants losing access to drugs will be the least of it.

The problem is going to be FOOD. Most people aren't aware that at any given time, at any population center in America, that there is less than 72 hours worth of food on the shelves in grocery stores, and not much more than that in the "warehouses"...which really aren't warehouses anymore, but rather "distribution centers".

The faster and more efficiently the food companies can move and sell consumables, the higher their profits are. Things that sit on the shelves cause a reduction in profits. Things that hit the shelves and sell quickly bring better overall profits. The goal in the industry was to streamline production and delivery and this, combined with IT automation has created a concept known as JIT (Just In Time) inventory. I think another term for the same concept is "Inventory On Demand". It means that the food producers keep up...plus just a little... with demand, and cut costs by minimizing production overages, which sit on shelves and cause profit reductions. The consumer isn't aware of this, and they go along blissfully ignorant. But the fact is that any type of infrastructure collapse whereby trucks and trains can't, or won't operate is going to cause a huge problem with food distribution channels....in well under a week. This is why after Katrina at NOLA it was so important to get aid into the place within a few days. Because the authorities KNOW that there simply isn't that much on hand! It's been this way for the past 10 years or so now. I don't track the industry heavily anymore, so I'm slightly out of the loop.

I wouldn't worry about a deranged bunch of druggies looking for dope, although I'll have to admit that I wouldn't be overly enthused to see them coming. However, I AM very concerned about groups looking for food, who are ordinarily supplied through the Government Handout System. These people will not only be hungry, but they BELIEVE that they're OWED something!...and that combination could make them very dangerous indeed.

[Toddsterpatriot]

Our nation's financial future has no hope in it. When 90%+ of our citizenry carries $20k in consumer debt, spread across two credit cards, makes a house payment, two car payments, and is using credit to put one youngster in school, the outcome can NOT be good.

Wow! Sounds scary! Where did you get this info?

[Toddsterpatriot]

I pulled a silver 50 cent piece out of my pocket and reminded him that IT could be quantified in not only terms of the currency of many nations, but in terms of bartering value as well because it was "intrinsically" valuable

Too bad silver dropped 50% since July.

[JerseyHighlander]

You are off a bit VOA,

In other words, their reserves were the PROJECTED decrease in taxes they'd pay because of horrendous losses (If I understood this sort of machination correctly).

In other words, their reserves were the PROJECTED decrease in taxes they'd pay against expected profits but the tax credit reserves have been wiped out because of horrendous losses.

They won't get tax credits on net income if they have gross losses. Freddie's CEOs are arguing they'll hold the paper long enough that they'll end up with net gains and then use the tax credits, but that event horizon is now beyond the horizon line of Fed regulators.

And if they are taken over by the Fed Gov, the entire tax credit reserve disappears and then Freddie is no longer solvent due to lack of reserves, though Fannie still might be salvageable.