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March 13, 2009

Jon Stewart to Jim Cramer: We are capitalizing your adventure

Jon Stewart of the Daily Show schooled Mad Money host Jim Cramer of CNBC last night.

By the time Cramer came on the show, Stewart and Cramer had been feuding publicly for several days.  Cramer was trying cast himself as a humble financial professional who made mistakes, but who is trying to reform a broken system from within.

Stewart confronted Cramer with video clips of his own past admissions about the conduct as a hedge fund manager.

So, it was a stroke of sheer genius on the part of Stewart and the Daily Show writers to load up these clips from The Street showing Cramer the hedge fund manager confessing that when he held a short position, he would create some spurious activity to artificially drive down the price of that asset. "It doesn't take much money," old hedge fund Cramer says in the clip.

Cramer's taped statements are simple declarative sentences in the first person, but the Mad Money host still had the gall to lie to Stewart's face. Confronted with the video of his own confession, Cramer insisted that he'd never confessed, that he was merely being inarticulate in the clips.

These clips are in service of Jon Stewart's larger point, namely, that there exist "two markets"...the long-term investments of ordinary people and the short-term speculative trades of Wall Street. As Stewart tells Cramer, the former is underwriting the excesses of the latter. As a financial news network, Stewart says, CNBC should have been warning ordinary people about the threat of the second market--but instead, Cramer and his buddies cheered on the speculative frenzy.

"We are capitalizing your adventure," Stewart told Cramer:

The full episode is available here, but the site keeps crashing, probably because of massive web traffic.

The Stewart-Cramer interview will be remembered as one of the great televised takedowns of our age. It's a cathartic TV confrontation in which Stewart gets to express our shared anger and resentment to an unrepentant co-conspirator in the financial collapse.

Cramer's probably never going to face a judge or an SEC investigator, or even a disappointed boss--what he did as a cynical cheerleader for the parasitic speculative class was probably legal and even protected speech. But at least Cramer has to sit up there and face the wrath of Jon Stewart in front of millions of viewers. Finally, someone is being held accountable.

The exchange reminded me of Joe Welch's legendary reproach to Joe McCarthy during the Army-McCarthy heartings of 1954:"You've done enough. Have you no sense of decency, sir, at long last? Have you left no sense of decency?"


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Yes, Alon. How does one conflict with the other?

Stewart is saying that Cramer was a mindless cheerleader for the speculative excesses of the system, despite a deep understanding of the huge risks. He also knew perfectly well that most of those Wall Street insiders weren't gambling with their own money. Wall Street was paid handsomely to manage Main Street's money, and by and large, Wall Street gambled it away spectacularly risky investments that had everything to do with blind faith that the real estate market would keep going up forever and thereby erase the fact that mortgages were being lent to people who couldn't possibly pay them back.

Alon: your vague references to Canada and Sweden do not rebut my point about the historical record. Certainly in the US, bank size appears to be strongly associated with corrupt financial practices and I think it's reasonable to infer that larger banks have more political influence than smaller ones.

Canada and Sweden combined have an economy that's probably not more than a tenth of the size of the US's. They also both have a political culture that is in ways far more progressive than America's. It's conceivable that this culture has allowed the maintenance of sensible financial regulations to co-exist with large banking entities. (I certainly hope so.) Or it's conceivable that it hasn't.

Much of Europe has a strong Social Democratic legacy, but I've been reading that in some respects their financial crisis might actually be worse than ours. (I've seen references to the idea that while American banks are Too Big To Fail, some European banks are Too Big To Rescue.) I don't know specifically how this has affected Sweden, but the Wall Street Journal says of Iceland that:

At the root of Iceland's troubles was an outsize banking system, which grew wildly overseas and built up foreign liabilities many times the size of Iceland's economic output. When the credit crunch struck, the banks faced difficulty making payments, and Iceland's central bank didn't have the foreign currency needed to bail them out.

Similarly, Canada's culture is more Social Democratic than the US, but it also has a greater 'deference to authority' strain to its political culture, and there appears to be a meshing of governmental and corporate decision-making there that might surprise progressives in the states. (I've heard, for example, that a prospective business development might not receive necessary licensing if it's deemed it would have an excessively adverse impact on an already-existing business competitor.) Whether this always redounds to the benefit of the public — and whether they've successfully warded off financial disaster through stringent financial regulation of their giant banks, or those banks are merely better able to work with government to conceal underlying problems — is not clear.

I will say, though, that it's gratifying to see you embrace the tenets of Social Democracy, Alon, and I look forward to the time when you renounce your somewhat foolish embrace of free trade as well. ;)

I watch the Daily Show online, for free.

An equitable exchange.

Lindsay says: "The hubris of Jim Cramer was to build himself up as an expert and then proceed to, very publicly, defend himself as just another hapless victim of unpredictable events..."


Alon Levy says: "Lindsay: you described it as 'These clips are in service of Jon Stewart's larger point, namely, that there exist 'two markets'...the long-term investments of ordinary people and the short-term speculative trades of Wall Street. As Stewart tells Cramer, the former is underwriting the excesses of the latter.' "

Yeah, so central bank good or bad? Let's take this off the table for a second. I think this above point still holds true. Buncha capitalists gettin' all hot and bothered over an 'emerging market' and before farmer joe knows it, he's been working all year, but a bunch of people down at the bank trade a bunch of pretty future papers or blow the bottom of the general market out by speculation and now he can't get any money this harvest for his wheat, that's what happens in a panic, and we're just lucky that this year, 18... wait, what was I talking about?

I don't know, but from perusing your site it doesn't seem as if you're an avid reader of National Review. But this article deals specifically w/ the Stewart/Cramer discussion. Check it out - I have to agree with Mark Hemingway on this one. I saw the interview (I don't really watch John Stewart), and my only thought was "You're a comedian. This isn't funny. I understand that it is a politically oriented comedy show, but it stops being funny when you start taking yourself too seriously." And then I read this article, which says some of the same things.

CNBC's fawning interview with Sir Allen Stanford was probably the clearest example of what's wrong with the network.

If CNBC really wanted to be the top name in financial news, they'd have had an army of financially-savvy investigative reporers digging into the books of every sketchy-looking, personality-driven investment fund out there. I'm sure the Stanfords and the Madoffs covered their tracks fairly well, but who knows how much they counted on lazy and complicit media. Who knows if they would have even tried if they'd had real journalists on their asses.

But they don't have real journalists on their asses, because CNBC is afraid the scrutiny will hurt Sir Allen's feelings, and he won't come on the teevee so they can ask him how awesome it is to be a billionaire. That's not journalism; that's public fucking relations.

I thought the tone of Stewart's interview was perfect--it was an intervention. It's a shame that Cramer has become a stand-in for the network as a whole when he's not even the worst offender, but maybe he's the one who actually gets it and can steer the ship right. We can hope.

AIG is an example of why the repeal of Glass-Steagall which allowed one corporation to be involved with insurance, savings banks, and investment banks was a bad thing.

Joshua Micah Marshall writes:

"AIG was actually a decently run and profitable insurance company. The problem was a small shop in London, AIG's the 'financial products' division. (Joseph) Cassano ran it. And that's where they wrote more than $400 billion of credit default swaps, mainly on crap mortgage debt. That means about $400 billion of de facto insurance policies he wrote that his company had no assets to cover."

If AIG was just an insurance company and not also involved in investment banking with credit-default-swaps, then the US government wouldn't be handing them billions to prop them up.

Lindsay: the "two markets" comment and the idea that Cramer's shorting of stocks was inherently bad are not signs of anger at blind faith. They're signs of belief that the other side is evil - that Wall Street is deliberately screwing with ordinary people, that the mobs are right to storm the courts with torches and pitchforks.

Ballgame: I think you're misusing the term social democracy. I'm quite comfortable with social democracy, and so are most neo-liberals. John Williamson, who invented the term Washington Consensus, said that one of the reasons countries should not subsidize industries is that their governments have more money to spend on health and education.

Even if what you're trying to say is that the US is especially averse to regulation, this is not really true. Western Canada (with the exception of Greater Vancouver and Victoria) is as anti-regulation as red America; Ontario as far as I can tell has about the same level of regulation as New York and California. The only major issue on which Canada is significantly more progressive than the US is universal health care; traditionally Canada was more progressive on racial issues, but the US is improving. Neither of these is in any way related to banking regulation. Even under Reagan, at the height of anti-regulation sentiments, there was no repeal of Glass-Steagall.

Size, deference, and state-corporate collusion are not very convincing arguments. In the 1990s, there was a financial crisis in Sweden, whose economy is one quarter the size of Canada's, and another in Japan, which is famous for its people's deference to authority and its level of state-corporate collusion. In the 1980s, everyone praised Japan for those attributes, while after 1997, everyone in the US suddenly discovered the virtues of American independence. The crises in Japan and Sweden were caused by different issues from the US mortgage bubble, but they do show that culture does not matter much. About the only thing common to these bubbles is euphoria, and the belief that the current growth will last forever if the current system is kept. Boosterism is independent of culture, but takes local characteristics. In Sweden of the 1980s, it led to unsustainable welfare and government spending, totaling 2/3s of GDP; in the US of the 1990s and 2000s, it led to under-regulation and repeals of necessary restrictions on finance.

Iceland is not the same as Sweden. Iceland had lax regulations, for which is was praised by American conservative institutions, and a conservative government. It was something of a finance tax haven, like Ireland, which had even more fake wealth (Ireland's GDP per capita, which includes foreign corporate profits, is the same as the USA's; its median household income is 20% lower than the USA's, despite having a larger family size and far less inequality). It also had a currency supported by 300,000 people, which is more collapse-prone than the more widespread dollar and euro.

Finally, I don't accept that size correlates with corruption in the US. It certainly correlates more with widespread corruption, though, because it's more visible when Citi screws up than when a community bank does. I don't know about banks, but in politics, size correlates inversely with corruption - for an example, compare how many Senators from large states have been indicted with how many Senators from small states have.

Mobs are right to storm with pitchforks? As Jon Stewart would say, settle.

More like: Citizens of whose life savings have been squandered by the "financial professionals" who were paid to safeguard those savings should be pissed off enough stop investing with the people who lost all their money.

Do you disagree?

We both affirm the value of expertise; as should the (directly and indirectly) investing public (i.e., every single one of us, one way or another).

If our self-proclaimed "experts" have performed badly, we deserve a full and public hearing.

If you were the boss of a company, and a key employee seemed to have screwed up catastrophically, you'd call them into your office and rake them over the coals.

As the tax-paying and investing public, we the bosses of the professional investor class, need a similar forum to rake our underlings over the coals.

Maybe we'll decide that these folks didn't really screw up as badly as they seemed to, but we won't know until we hold them accountable.

Don't just let people who call themselves experts escape the consequences of their mistake by appealing logical fallacy of appeal to ignorance. (I'll assert I did the expert thing, and you don't know differently.) Demand intelligible explanations for stuff that seems not to make sense.

Part of the mark of a true expert, as opposed to a poseur hiding behind some kind of authority, is that s/he can translate the gist of her arguments for an intelligent layperson who's willing to do the intellectual work. Demand that much of anyone who calls themselves an expert.

Alon, you're completely misinterpreting the "shorting" detail of the clip I referenced in the original post.

Cramer specifies in the clip that, as a hedge fund manager, he illegally manipulated the market under a particular set of conditions. I.e., he manipulated the market when he held a short position, meaning that he needed the relevant asset to go down in order to make money on that trade. The condition under which he stood to make money is irrelevant.

Creating a smokescreen of trading activity to make the value of the asset go up would have been equally morally problematic and illegal.

The point of Stewart's showing that clip is that Cramer manipulated the market in an illegal way. The implication is that some poor chump who merely watched Cramer's show wouldn't probably wouldn't have been in a position to manipulate the market to make sure her stocks (or commodities, or whatever) moved in the direction that she'd hoped when she made a put or a call.

PS.that hedge fund insider video was posted at dkos, people were urging Stewart to use the video. (To point out that he is not as innocent as he would like people to believe.)


a couple of note.

I for one don't think Judith Miller simply "complicit". She is a player. I would bet a pretty penny she is a plant. (I am waiting for a gotcha moment for real, even if it takes another 20 yrs.)

2. Cramer? I think he is a sucker. He thinks he is so smart able to pump and play the market in his little role. But in larger scheme of thing, he is just another bit player. If one browse financial newsgroups, one basically see tons of these hype-machine/pump and dump/corporate cheerleader. Cramer uses television show, that's all. But I doubt he has connection more than several hundred million at most.

financial television is nothing but corporate PR division. sort of like Time magazine or popular science. They are just glossy advertisement pretending to be news articles.



corporate-state collusion.

1. the elimination of steagall act was driven by senator Gramm, during that time his wife was involved in futures trading regulation then Enron electronic trading.

"In an apparent response to a 1992 plea from Enron, Dr. Wendy Gramm, then chair of the federal Commodity Futures Trading Commission, moved to exempt the company's energy-swap operation from government oversight. By then, the Houston-based Enron was a major contributor to Senator Gramm's campaign."

The gramm laws among other makes energy future trading possible. Breaking down the barrier of rating, investment, and deposit banking were only relatively minor sideshow until current banking collapse. Enron energy trading was the big point. (and we know how that ended.)

another one was bankruptcy law.

It is utterly naive to say, those laws weren't written by financial industry so they can operate beyond dangerous line. (eg. CDS, leverage, capital requirements, etc)

oh btw. these are the coolest blogs (eg. you can feel their little posts actually pointing out the man behind the curtain, and the power that be are panicking because these little critter are shouting the naked emperor. Their data and analysis are frighteningly accurate.... eg. they are all written by insider who are fed up with the system or people with serious brain cycle to waste.)

latest weird thing: US sovereign credit swap rate. (eg. the world starts to bet we can't pay our debt. It is at non negligeble 6% rate and won't go down.)

you talk about this, you gonna get twacked in the more "polite" blog. So you know something is up ...

k. have fun.

Great links, squashed. I particularly like this post from Naked Capitalism, explaining the various ways in which traders game the system behind the backs of ordinary investors.

Another interesting link is Henry Blodget parsing Jim Cramer in Slate. Blodget links to a full transcript of Cramer's remarks from the video confession excerpted by Stewart.

As we discussed earlier, it would it have been just as unethical for Cramer to manipulate the market by making bogus trades and lying to the press while he was in a long position (to make stocks go up). Moreover, Cramer actually says he did that, too.

Lindsay, I do disagree. Your evidence that the hedge fund managers were bad is the fact that right now the US is in a financial crisis. By that logic, it was sound to invest in 2007, when the market was trending up. That, indeed, is what most people did - they were boosters in 2007, and only became angry populists after the market crashed. Neither past success nor past failure guarantees similar results in the future. People who really think that it does are no better than people who go to Vegas, see four blacks in a row, and are then confident about the odds and bet their entire savings on red.

I'm somewhat more sympathetic to your attack on "self-proclaimed experts" - but only somewhat. It reminds me too much of the attacks on nutrition science you see on Alas, A Blog, or of the attacks on postmodernism by new atheists who have never heard of Habermas, much less read him. The financial managers, I'm sorry to say, do know what they're doing. The problems with them were groupthink and boosterism, which would exist with any group you'd replace them with. Criticism from the outside tends to mitigate these problems, but it has to be informed, as it is when it's coming from Paul Krugman and Brad DeLong, who I'm implicitly channeling here. When it's not informed, and Stewart's isn't, it comes off as no different from Scott Adams and Ben Stein's creationism; in particular, it doesn't keep excesses in check.


No, that's not my position at all. Where are you getting that straw man? In this particular discussion, the evidence of misconduct by particular hedge fund managers comes from the self-incriminating statements of a former hedge fund manager and the confessions of other traders.

I'm not arguing that hedge fund managers caused the economic crisis, nor is Jon Stewart. Stuart showed the clips to dramatize Cramer's hypocrisy. Cramer claimed that he was doing his best to protect the average investor from big predators. Yet, the video shows Cramer confessing to misconduct and apparently encouraging other big players to do likewise because everybody's doing it.


… and foreign policy, and military spending. So, yeah, Alon, Canada's more progressive approaches to those three issues does, indeed, make it significantly more progressive than the U.S.

Neither of these is in any way related to banking regulation.

Actually, Alon, you were the one that implied that Canada had more stringent control of its banking behemoths than the U.S., not me.


I never said that culture was of overriding significance, although frankly your examples tend to buttress the idea instead of rebutting it. Sweden and Japan both have financial crises, but the more Social Democratic Sweden is able to manage through it and end up in much better position than Japan, which finds itself tied to "zombie banks" for more than a decade.

My point was that large banks have more political power than small banks — a logical inference which you haven't rebutted. The fact that ALL of the largest U.S. banks used the Ponzi-esque credit derivatives while almost NONE of the smaller banks did implies that the larger banks may have been aware of the exceedingly dubious nature of these financial instruments (or, at a minimum, were indifferent to their fundamental lack of soundness), and it's reasonable to suspect that they knew the government couldn't or wouldn't let them fail.

Your vague point about senators from smaller states being more corrupt is dubious and utterly irrelevant to this discussion.

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