In defence of Cramer and CNBC

I think you’d be mad to take money advice from Jim Cramer. (See what I did there?) But Megan McArdle isn’t joining the angry, Jon Stewart-led mob trying to hold Cramer and his network responsible for the financial crisis:

…Jim Cramer had no influence over the twin manias that afflicted America in the last ten years: the madness of homebuyers for ever more expensive houses, and the madness of bankers for buying bonds based on those homes. Jim Cramer did not persuade the Asian savers to pour moronic amounts of capital into oversaturated American markets. He did not talk up MBS or CDOs to any level that could be vaguely said to have meaningfully increased the amount of leverage in the system. If you want a television host, or network, to blame all of our troubles on, you’d do better to cast your ire on Home and Garden Television, and Flip This House. They’re the ones who told Americans, over and over and over and over, that it was possible to get rich by installing granite countertops.
Jim Cramer ran a show on trading. You can say it might have been nice if he’d run a show on financial regulatory theory, but there’s no reason to think that he would be any good it it–the guy’s a trader, not a regulator, not a crack investigator. The skills that make someone a good trader, like a short attention span and an appetite for risk, are not what makes someone good at economic theory or managing regulation. We lost precisely nothing, as a society, when he decided to tout stocks instead of take a dive into public policy.
[…]
No, neither Jim Cramer nor CNBC created this mess. They focus mostly on stocks, and though people tend to think of the stock markets as synonomous with the financial system, they just haven’t had much to do with the current problems. And thank God, really. I’d rather not hand over the responsibility for the US financial system, or even my retirement account, to a guy who goes on camera to bite the heads off of plastic bulls.

Via Michael Moynihan at Reason. Richard Cohen, in the Washington Post, makes a similar point:

…[CNBC] didn’t cover up the story of financial shenanigans. They didn’t even know it existed.
For proof, I can offer some names. Let’s start with Maurice “Hank” Greenberg, who was instrumental in building what is now probably the world’s most reviled corporation, AIG. He resigned as chairman and CEO in 2005, but still it is logical to assume that few people knew more about the company than Greenberg. He kept much of his net worth in AIG stock. He’s now lost much of that worth.
Or take Richard Fuld. He is the former chairman of Lehman Brothers, which, as we all know, is no more. He lost about $1 billion.
Or take Citigroup’s former chairman, Sanford Weill. He lost about $500 million.
Or take all the good people at Bear Stearns, the company Cramer adored almost to the bitter end. They went down with their stock.
If these people kept their money in these companies — financial and insurance giants they had built and knew from the inside — how was even Jim Cramer to know these firms were essentially hollow?
[…]
…the role that Cramer and other financial journalists played was incidental. There was not much they could do, anyway. They do not have subpoena power. They cannot barge into AIG and demand to see the books, and even if they could, they would not have known what they were looking at. The financial instruments that Wall Street firms were both peddling and buying are the functional equivalent of particle physics. To this day, no one knows their true worth.
It does not take cable TV to make a bubble. CNBC played no role in the Tulip Bubble that peaked, as I recall, in 1637, or in the Great Depression of 1929-41. It is the zeitgeist that does this — the psychological version of inertia: the belief that what’s happening will continue to happen.
Stewart, too, rides the zeitgeist. The hunt is on for culprits and scapegoats, and Stewart has served up a cliche: the media. As with the war in Iraq, for which credulous media should take some responsibility, the sins are blown out of proportion. It would be one thing if Wall Street titans by the score were selling their company stock and the media were failing to report it, but when someone puts his money where his mouth is, you have to pay attention. The big shots believed.

CNBC’s documentary about the financial meltdown, House of Cards – which the network has been re-running every five minutes or so – is actually quite good. Jim Treacher, meanwhile, twitters an interesting observation:

I’ve never cared much about Jim Cramer, but it’s “funny” how he didn’t become a problem for Jon Stewart until he became a problem for Obama.

Damian P.

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7 thoughts on “In defence of Cramer and CNBC

  1. “it’s “funny” how he didn’t become a problem for Jon Stewart until he became a problem for Obama.”
    I don’t think anyone — except a media type or someone who’s never watched more than 2 episodes of The Daily Show — would write this.
    Stewart’s — and, more obviously, Colbert’s — entire show has been about mocking the media in general and clueless, vapid TV talking heads in particular. Cramer may be the newest specific target, but that ilk has always been the main raison d’etre for the show. Stewart in particular has always been relatively gentle in interviews with politicians and book authors, even those you might expect him to wildly disagree with; however he’ll routinely savage the TV `news personalities’.
    What’s funny is that media folks choose to be *completely oblivious* to this, thinking that Stewart is making fun of daily events; so they are always suprised when something like the Tucker Carlson or Cramer thing happens — when did Stewart start being mean? But then they forget and go back to being unaware that Stewart holds them in contempt — and has a sizable audience because a *lot* of young North Americans feel the same way.

  2. I tried to get the references but was unable to. This morning on Toronto’s CBC program Metro Morning the regular business commentator Michael Hlinka (who is very good) had a fascinating insight into the man who may have been inadvertently been responsible for this mess. It’s not in the program’s archives so I’m going from memory.
    I believe the person’s name is David Lee who studied and later earned a graduate degree in mathematics, actuarial studies and statistics from the University of Waterloo. The University of Waterloo has one of the best math departments in the world so Mr. Lee is a very bright man. He published a scholarly paper in “The Journal of Fixed Income” ( http://www.biz-lib.com/products/ZIIJFI.html ) about how risk could be managed and reduced by repackaging (or securitizing) mortgages and similar debt instruments.
    Apparently his paper was widely circulated and acted upon which ultimately led to banks lending far more than was prudent based upon their assets. According to Hlinka, David Lee wasn’t directly responsible in so far as his paper was scholarly research on an esoteric mathematical topic. Unfortunately it had dire consequences.

  3. “I don’t think anyone — except a media type or someone who’s never watched more than 2 episodes of The Daily Show — would write this.”
    “No” to the former, and “Many more than that” to the latter. Glad to expand your horizons.

  4. Television comedy has a long history of highly partisan behavior. For example, many people, myself included, believe that, had it not been for Saturday Night Live, Gerald Ford would have had a second term.

  5. Bruce:
    Quite possibly true – but Chevy Chase was very good.
    I wonder if Dan Ackroyd did Jimmy carter in? Not a chance, Jimmy did himself in.

  6. John B,
    Kevin Lee was the one who came up with a correlation for asset values. His work came with serious disclaimers about applying it across the board.
    It’s not his fault, it’s the people who seized upon that limited formula, ultimately dependent on a single fudge factor, and treated it as an infallible black box.
    The fudge factor was treated as a constant by the people applying his formula, but it turns out it was a volatile variable.

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