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Financial Crisis: As Cramer Warned, Fed Laughed

In 2007 Jim Cramer grabbed the spotlight after he publicly chastised the Fed for not acting more aggressively ahead of what would become a great financial crisis.

On the CNBC show Street Signs – Cramer launched into what is now called Cramer's 'They Know Nothing' rant. Cramer all but lost it – as he insisted the Fed was way behind the curve on the coming housing crisis.

Following is an excerpt or click here to see the video.


"He (Bernanke) has NO IDEA what it's like out there. NONE! And Bill Poole, he has NO IDEA what it's like out there. My people have been in this game for 25 years and they're LOSING THEIR JOBS and these firms are gonna GO OUT OF BUSINESS and it's nuts. They're NUTS! They know NOTHING!!" said Cramer in August 2007.

The anchor of Street Signs at that time was Erin Burnett - and she was caught completely off guard. She listened patiently and somewhat helplessly as Cramer jumped the rails.


Looking back at that now infamous day, Jim Cramer explained that "I only got going because my friend Erin Burnett inadvertently pushed the wrong button by asking what they should do any why they weren't doing it."

As it turned out – Erin Burnett pushed the right button.

We've now just learned that Cramer's message got through the Fed loud and clear. In minutes from the 2007 Fed meeting released only last week, the Fed cited Cramer's rant.

And it seems they made fun of it.

On page 51 of the minutes – Atlanta Fed President Dennis Lockhart cited Cramer's commentary. Here's an excerpt. Click here to read more.

"I believe that the correct policy posture is to let the markets work through the changes in risk appetite and pricing that are under way, but the market observations of one of my more strident conversational counterparts— and that is not Jim Cramer [laughter]—are worth sharing."

That's right, the Fed laughed.

"I was amazed that my comments were met with such derision rather than an attempt to deal with them head-on," said Cramer.

Perhaps it was the tone.

"I certainly didn't intend to go ballistic when I started," Cramer added. (Click here to see the infamous 'They Know Nothing' rant in full context.)

It's just that circumstances had unraveled so quickly the Mad Money host knew aggressive action was needed. Cramer felt the 'let-the-market-handle-it' crowd had to be stopped.

Whether it was the tone or something else - the Fed chuckled. Nothing more.

"The Federal Reserve certainly never reached out to me, even the lowest levels. You would think they would be more curious, only to find more belly laughs to live up their meetings," said Cramer.

It's worth noting that ultimately Cramer's message was heard. Within a few months, the Fed recognized that crisis was coming and became very aggressive. However, not before irreparable harm was done.

"Had the Fed cut rates dramatically at the time, as I suggested, we might not have had so many financial institutions go under or as many as $7 trillion in mortgages that subsequently went bad or needed to be modified," he said.

But Cramer didn't revisit the issue on Tuesday's broadcast to show how right he was or how wrong the Fed was, "although the cruel irony of their laughing at my performance is pretty galling considering subsequent events," Cramer said.

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Instead Cramer revisited the issue because he doesn't understand how it happened.

"I am confused to this day about how my contacts could have been so much better than theirs," he said. How could the Fed with all of its resources and nationwide staffs and fabulous data not get it better than this one commentator? Doesn't it say that something is very wrong about this institution if that can happen?"

Cramer has some theories.

"First, it is possible that people are reluctant to tell important Federal Reserve people the truth for fear that it could haunt them in the form of regulatory action," he said.

"Second, there is a natural tendency among key people in the financial industry to not raise any red flags for fear that they can shake confidence, which even in the best of times, can be a real issue," he added.

"Finally, I think they speak to the wrong people. It's the people in the trenches who know the most and the people I talk to are very much the higher-level people who man those trenches," he said.

What's Cramer's takeaway?

"All I really did was manage to bring a little levity to a clueless set of people who should have known a lot better than some blogging Television Show personality. Just like no one high level in the corrupt portion of the mortgage industry was ever pursued by the authorities, no one in that room ever had to pay any price for getting it so wrong," Cramer said.

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