Short-selling traders with their "massive selling firepower" have created this market volatility, but Cramer said it's the Securities and Exchange Commission that has allowed them to do it. He thinks it's the SEC's action and inaction alike that first allowed the fall of Lehman Brothers and now jeopardizes bonds of European countries and US stocks, too.
"What we need is an SEC that protects the unsophisticated from rapacious capitalists," Cramer said. "Instead we have one that's been captured by the exchanges and abets the most sophisticated traders."
In 2007, the SEC repealed the uptick rule, which curbed the ability of short sellers to drive stocks down. It required sellers to wait for someone to pay more, an uptick, before they were allowed to sell a stock short. The rule had been in place since the Great Depression and once repealed, Cramer said shorts were able to "run wild." The Commission has also allowed the rapid growth of “exchange-traded funds of mass destruction,” which are double- and triple-levered short ETFs that give you up to three times the short-selling power. Cramer said the danger here is that sellers can manipulate the market with greater selling power. In turn, the SEC has demonstrated its favoritism toward "high-frequency traders who turn portfolios 11 times in 10 seconds," Cramer said.
With these changes, Cramer said the SEC began failing everyday investors during President George W. Bush’s administration and criticized Obama's appointees for failing to make anything but "cosmetic changes."
Cramer also warned of corrupt money managers -- the "Madoffs of the world," who he said the SEC is not equipped to catch or is often after the minor offenders, instead of the major ones. The lesson here, Cramer said, is your money manager should provide you with reports directly from where he keeps his master account.
While the market is tough, Cramer said you can still make money, but it will be difficult and often frustrating.
"You are on the short end of the government stick, so protect yourself with limit orders, with diversification, with no margin, and with higher yielding dividends because believe me," Cramer said, “no one else will protect you. No one."
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