Should the Banks Thank Barney?
The broker/dealer stocks on Thursday bounced back from earlier losses after Rep. Barney Frank told “Street Signs” that he partly disagreed with President Obama’s call for increased regulation.
While Frank (D-Mass.), chairman of the Financial Services Committee, was not necessarily opposed to the president’s reforms – stopping banks from operating in the hedge-fund and private-equity worlds and banning proprietary trading – he did have a problem with Obama’s demand for an immediate change. Frank said he preferred a three- to five-year period instead.
“Any mandate to make them do it immediately would be a mistake,” Frank said, adding, “it’s got to be done over time.”
Frank said it would be a bad idea to require an immediate breakup of these institution's hedge funds or private-equity funds because it would reduce the assets' value. Also, the government shouldn't be “disruptive at a time when the economy is troubled.” While proprietary trading, or the practice of an institution investing its own money in the market rather than for a client, could be halted immediately, Frank said a more measured approach to divestiture would be prudent.
In response, the broker/dealer stocks immediately shot higher, with the NYSE Arca Securities Broker/Dealer Index finishing the day in positive territory.
Cramer during Stop Trading! said he agreed with Frank and spoke of the influence the congressman would have on the process.
“Barney Frank’s going to have the last word here,” Cramer said, “not the president of the United States.”
Cramer also commented on the two camps in Obama’s administration, one led by former Federal Reserve Chairman Paul Volcker, who now is chair of the Economic Recovery Advisory Board and calls for limiting the size and scope of banks and their activities, and the other with present Federal Reserve Chairman Ben Bernanke, who sides with Frank.
Obama apparently has taken a more populist stance against the largely unpopular banks by favoring Volcker’s approach. But Cramer said he hoped Obama would let Bernanke and Frank, who have been working on this issue for some time, take the lead.
“They’re sophisticated players who have really thought it through,” Cramer said, “and I think the president should be over in their camp.”
Cramer said the relative silence from present Treasury Secretary Timothy Geithner could indicate his split with the White House over this issue. But Geithner is keeping quiet because he’s “a very good soldier.”
Lastly, Cramer called Huntington Bancshares , Fifth Third Bancorp , KeyCorp and Regions Financial “some of the worst mortgage lenders in the world,” but the stocks were up anyway on Thursday. Cramer said that these companies should have been on the president’s radar, but weren’t because they don’t run hedge funds. Goldman Sachs, though, has been a big target for Washington even though its fund was “very successful.”
“These are the ones that really screwed it up,” Cramer said of HBAN, FITB, KEY and RF, “and now they’re running.”
A previous version of this story incorrectly stated that Paul Volcker was a former Treasury secretary.
Cramer's charitable trust owns Goldman Sachs.
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