Cramer Was Right
Cramer will be the first to admit that he doesn’t register on the Federal Reserve’s radar. But his now-famous rant against the central bank one year ago no doubt left its impression on Wall Street, the markets, even our collective consciousness.
Do you remember where you where Friday afternoon on Aug. 3, 2007? Those of us at CNBC World Headquarters here in Englewood Cliffs, N.J., could hear Cramer screaming “They know nothing!” up on the second floor. We didn’t expect the all the YouTube views, but it was clear something important had happened.
“I just couldn’t take it anymore,” Cramer said during Friday’s Mad Money. “The Fed was asleep at the wheel.”
Subprime loan exposure was killing the banks, millions of Americans were in danger of foreclosure, and what was Chairman Ben Bernanke worried about? Inflation. Cramer wanted the discount rate, the rate at which banks can borrow from the Fed, and the Federal funds rate, the rate at which banks can loan to each other, slashed to allow these firms access to some desperately needed capital and holders of adjustable rate mortgages the chance to refinance. Former St. Louis Fed President Bill Poole wanted to raise interest rates.
“Can you imagine what would’ve happened if we’d listened to Poole” he asked viewers today.
Well, the discount rate, at 6.25% on Aug. 3, didn’t get its first cut until Aug. 17. And the 5.25% Federal funds rate didn’t reach 2% until April 30, 2008. If Cramer had it his way, that would have happened much, much sooner.
Here’s how the Fed’s strategy played out:
Bear Stearns plummeted 92% from $118.30 before JPMorgan Chase took over at $10 a share. Fannie Mae is down 80% to $11.82 from $59.21 a year ago. Freddie Mac’s down 86%. Merrill Lynch, down 63%. Washington Mutual, 86%, Lehman Brothers, a whopping 96%. Citigroup and Wachovia, 60%. And last but not least, IndyMac. This bank was trading at $20.16 a year ago and was recently seized by the FDIC.
“How could a lunatic television show host like me, who uses hokey sound effects and animal noises, have gotten this right,” Cramer asked, “and the revered Ben Bernanke have been so wrong?”
“Well, it’s simple, isn’t it?” he continued. “No one holds the Fed accountable. I think we should’ve started holding the Fed’s collective feet to the fire ages ago. And we’d better start doing it some time soon.”
“In the end, they blew it,” Cramer said of the Fed, “they really did. They did know nothing. They really didn’t. And now the trillion-dollar bill has come in, the foreclosures are off the charts, the job losses – seven straight months – unfathomable. And somehow, some way, we still revere them. Didn’t make sense then, doesn’t make sense now.”
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