President Obama, it appears, has finally seen the wisdom in Cramer’s solutions for the economy. The White House recently has been quite vocal about the very issues that Cramer has talked about the most. Obama’s spending plans, and his handling of the economy, had made him persona non grata on Mad Money, but the president’s shift in position has forced Cramer to change his own.
Too bad Wall Street is far less enthusiastic about Obama these days. Hedge funds are up in arms about the president’s intention to regulate their virtually opaque industry. He wants them to have disclosure rules similar to those of mutual funds. And why not, Cramer asked? Why should hedge funds be exempt from oversight?
Hedge funds were at the heart of the market’s near collapse in 1998. Remember Long Term Capital Management? Laissez-faire didn’t work then, and it definitely won’t work this time around. Last fall, Cramer was constantly talking about hedge fund redemptions and how that mass liquidation of stocks was hurting entire sectors. So transparency would allow regulators to see just who’s creating these problems.
Worst of all, at least for these big money managers, is that Obama wants to tax hedge fund paychecks as ordinary income. These guys have been converting their earnings into capital gains, which are taxed at a much lower rate. This allowed hedge fund employees to take home a bigger chunk of their winnings, however unfairly. Cramer called this tantamount to tax evasion.
President Obama has also said he wants to regulate executive pay beyond just hedge funds. The goal would be to bring management’s interests into line with shareholders, which was not the case at AIG, the old Citigroup or Fannie Mae and Freddie Mac. Critics have called the idea anti-capitalist, but Cramer saw it as a good thing. He thinks it would restore confidence in the system on the whole, and that would push the markets higher.
While Obama does want to rein in Wall Street’s unbridled pay structure, the president at the same time doesn’t want to be punitive. That’s why he called Congress’ bonus-tax bill unconstitutional. He’s trying to keep public outrage over AIG’s bonuses from getting in the way of saving the financial institutions that deserve a bailout. That’s smart, Cramer said, and it’s exactly what we need right now.
It seems the only plan coming out of Washington that Wall Street does like is Treasury Secretary Geithner’s solution for banks’ toxic assets. Hence the Dow’s 500-point rally on Monday. Cramer wasn’t exactly wowed, though. He expects some money to be raised as private institutions buy up these assets. But in the end, the market moved today because a host of other backstops are already in place: Federal Reserve Chairman Ben Bernanke’s statements that there will be no more bank failures, seemingly little worry about nationalization anymore, the loosening of mark-to-market accounting rules and the Fed’s Term Asset-Backed Securities Loan Facility to urge private money to buy asset-backed paper. The market knows this, and is less desperate for an all-encompassing solution from Geithner.
No doubt the plan will help, Cramer said. But in combination with these other ideas, as well as the reinstatement of the uptick rule and hopefully some enforcement of rules against naked short selling, there’s a real chance for U.S. gross domestic product to finally head in the right direction.
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