http://www.youtube.com/watch?v=SWksEJQEYVU He sure is excited
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That’s hilarious. He is so angry because him and all his no-skill buddies who have made a ton of money by taking excessive risk have never gotten their hand caught in the cookie jar . . . just got their hand caught in the cookie jar.
I can’t wait for all the crappy hedge funds to go out of business. It will make my life a ton easier.
Cramer thinks the fixed income market is in the worst turnmoil in 22 years?..hmmm…
Deeply enjoyed that. I love that part where he goes on about “they’re losing their jobs.” Some of these bastards have made an obscene amount of money on the backs of bankrupting Americans in the sub-prime market and now he wants a federal bail out so a bunch of guys can hold on to their yachts.
I think he kept asking for a rate cut, which I would agree with. A bail out would be the least helpful thing, just like during the S&L crisis or really anytime government bails out anything. I didn’t hear him ask for a bail out, maybe I missed it.
I am a professional real estate investor and this really is on the brink of toppling, so I do feel his emotion, but as a TV personality, he probably could have kept it more under control, which I think he began to realize at the end of the piece. We do really need a rate cut and quickly, but I’m not going to yell at you for it.
I have no yacht, but still agree w the “rich”. I’ve gone through 17 rate increases and it sucks. I didn’t see the purpose then and don’t see it now. It wasn’t broke, it didn’t need fixing. (Someone did need wartime funding though)
Outside of trying to increase demand for US government backed securities it has done nothing but hurt our economy. Once the consumer runs out of available credit card/heloc debt, retail purchasing will slow and we’ll grind to a halt. Our economy is dependent on foreign investors purchasing our debt and normal people running up bills at Wal Mart.
That said, many people did take stupid mortgages and are paying the price. I can’t even come close to looking at the amount of foreclosures that come across my desk every day. People can’t do basic math, but we trust them with hybrid-option ARM’s on their home. Caveat emptor there though. Tough topic.
I am a professional real estate investor and this really is on the brink of toppling, so I do feel his emotion, but as a TV personality, he probably could have kept it more under control, which I think he began to realize at the end of the piece. We do really need a rate cut and quickly, but I’m not going to yell at you for it.
I’m not sure who is aware and who isn’t, but that IS his TV personality. He was a little over the top, but its to be expected from him.
I’d be interested to hear more of your opinions about the market. It’s one thing I’m a little behind in educating myself on. I do know this much, though. Sarah and I are living WELL with in our means and plan to keep it that way for a while. We looked into upgrading to a nicer home, but the money we save in interest alone is worth it for us to stick it out for several more years in our town house.
We looked into upgrading to a nicer home, but the money we save in interest alone is worth it for us to stick it out for several more years in our town house.
It’s a good thing you decided to stick it out, Cramer says you couldn’t get a mortgage for a new place anyway. 
And. Apparently the market is going to crash, so you should wait a while and buy the nicer home when it is selling at half price. Again—
I am generally a Cramer fan, at least from an entertainment perspective. That seemed a little over the top, even for him. I sometimes feel sorry for Erin Burnett for having to listen to him rant like that.
I like Cramer myself, and he does give good passionate advice most of the time. I’m not a fan of his stock picking show, but do like his overall economic commentary. I thought he was best on Kudlow/Cramer before going solo. He’s very honest about his past and gives a good eye on how wall street is in no way looking out for the individual investor. I think he is more socially conscience now that he is independently weathly, seems to work that way for most.
On Society - The biggest problem with most people is no one teaches them finance, even basic finance. This is one of the main reasons for the great divide between the upper class and lower class. Education, math, finance, and to some extent common sense. I stand in line behind people at the bank who cannot add thier deposit slip, but the are “sold” HELOC’s and ARM’s just as fast. Just b/c you can afford something doesn’t mean you should buy it. “Our” country’s drive to make everyone a home owner may be it’s demise. Not everyone should own a home, it’s not a nice thing to say, but it’s the truth. It’s too easy to buy and finance a house, and we’re all learning the hard way now. I have tenants on HUD and Section 8 attempting to buy my houses. They are qualifying for mortgages and are on welfare!!!
On the market - Most people bought up into an overpriced market, got burned and are trying to sell in a dead market. Typical buy high, sell low. See it all the time in every market. Stock market in 99 for example. There are many “rich and smart” people who did this exact scenario in the past 5 years w/ real estate. They heard real estate is hot and bought in at full price, now it’s dead so they want or need to sell b/c they don’t have the resources to make it through. For those looking to buy low, now is the perfect time to pick off cheap properties and sell when it comes back up, thus making actual cash profit, not paper appreciation. It doesn’t matter until it’s cash.
I do know this much, though. Sarah and I are living WELL with in our means and plan to keep it that way for a while. We looked into upgrading to a nicer home, but the money we save in interest alone is worth it for us to stick it out for several more years in our town house
You are so un-american it drives me crazy. How dare you not have the latest plasma, car, appliances and lots of credit card debt and a extremly low savings rate. 
That being said, I just finished paying my mortgage 6mo into the future to give me some wiggle room as i make some decisions on this end as to where I want to live.
I was asking my wife what her bank is doing about the forclosures and she said people are paying their car and credit cards but not the mortgage. The rationale is they need a car to go to/from work and credit cards to finanance their lifestyle but they can rent an apartment instead of keeping their McMansion.
I’ve gone through 17 rate increases and it sucks. I didn’t see the purpose then and don’t see it now. It wasn’t broke, it didn’t need fixing. (Someone did need wartime funding though)
Outside of trying to increase demand for US government backed securities it has done nothing but hurt our economy. Once the consumer runs out of available credit card/heloc debt, retail purchasing will slow and we’ll grind to a halt. Our economy is dependent on foreign investors purchasing our debt and normal people running up bills at Wal Mart.
Wow. I think you should write Ben Bernanke and tell him how to do his job. You clearly have a stronger grasp on macroeconomics than any of the so-called “real” economists that make our monetary policy.
If they let “real” economists run this thing it would work. Hopefully they would stick to the basic principles and not become part of “washington” though.
What we have are politicians and people with political goals parading as economists and thus making our monetary policy. Those 2 can never mix in my opinion. Economic is a science, and when left to it’s scientific base, it works well. Once politics is mixed with any science, the science loses credibility.
Notice how all 17 rate increases did little to affect the rate/price of the 10-yr treasury over the same term. It’s b/c real economists and bond traders know the Fed and administration were/are wrong. So they (Greenspan/Bush/whoever is the wizard of oz) kept their foot on the gas pedal to keep raising prime while the bond rate stayed low, exactly the thing they were trying to raise. The free market was fighting them the whole time, so they just kept raising the rate. Finally, the realized no matter what fed did to prime the 10-yr rate would not go up. B/c normal people in the free market did not believe the monetary policy of the government was correct. So now we have a whacked out yield curve. Go to most banks and you’ll get a higher CD rate on a 1 or 2 yr CD than a 30 yr.
On another front - The 10-yr treasury drives Fannie Mae backed mortage rates, not the prime rate. So normal people seeking mortgages have still been getting great rates over this period, thus allowing them to continue to borrow against their homes and spend it. There has been a misconception raising the prime rate has affected real estate across the board, it has not. It has affected development and investment, not the individual consumer who only has a mortgage on their personal residence. So the middle and lower class could still get loans and spend the cash-out on goods and services and fuel our economy. The biggest negative impact on real estate has been the media, who was getting the whole story wrong. If you have good credit and want to buy a house, you’re still getting a terrific rate in most cases.
Now the sub-prime collapse happens - so now lower class people cannot get loans and cannot spend the money at Wal-Mart. Note also, who usually works construction/labor, the lower-middle class. They all lost their jobs from the prime increases b/c the builders and developers went broke and could not afford to finance thier projects due to higher rates. They lose their job, cannot borrow to pay for things and get foreclosed on. I think we have minor fallout from some of the ARM’s, but it’s not the whole story.
We’re seeing the beginning of the unravelling on the system. If the democrats raise taxes and lower to middle class people cannot borrow to spend we’re in big trouble. There is a sense around the world that this is the case and nations such as the chinese are emboldened to make economic threats. The still use econonmists, not politicians. Fear and politics have driven out economic/monetary policy.
I could be completely wrong, I only took one macro class in college. Got the degree in Finance b/c economics wasn’t “cool”.
What is a heloc debt?
HELOC = Home Equity Line Of Credit. Instead of just refinancing the loan (which is closed-end) and taking the equity out and buying Harleys, you now have a revolving line of credit that once you max it out, just make a few payments and you have “available credit” again just like a plastic credit card.
Brett
Exactly what timberwolf said, except instead of a Harley most people use it to live off of and/or pay off credit cards. They rarely pay principle down unless forced to do so (typically after 5 years). Then when the HELOC draw is maxed or spent they go back to using credit cards. Then they try and refinance again to get out of it. The problem is when home values drop then people are upside down on their home, cannot make both payments, and cannot sell = foreclosure.
The orignial principle was for home improvements or many times it was a better loan than an auto/boat/etc loan one would typically get to make major purchases. It is an extremely useful tool for people who know how to manage money. In the past 5 years they became way too easy to get like most credit. I would wager the typical american household lives more off of credit/debt than actual earnings. Many households have little or no savings and are would be bankrupt if they missed more than one or two months of income.
The rich (banks) push credit so people can live rich, even though they cannot and should not. The interest makes the rich richer and the poor poorer or bankrupt, but they have nice TV’s. Thus creating the expanding devide between upper and lower class. But in a free market economy, caveat emptor. Just b/c you cannot understand your loan doesnt mean someone won’t give it too you.
Cramer thinks the fixed income market is in the worst turnmoil in 22 years?..hmmm…
Not Cramer, but Bear Stearns made that comment. I think this is similar to the savings and loans problems from the 80s which lead to the real estate market crash in 1990. As for Cramer, this is typical of him and I would not consider him crazy on this segment, that is just the way he is. You might think he is crazy if this was the first time you saw him. When I was a day trader, I use to go up against his firm. Too bad the stock market crash and all the little guys lost their shirts.
If they let “real” economists run this thing it would work. Hopefully they would stick to the basic principles and not become part of “washington” though.
What we have are politicians and people with political goals parading as economists and thus making our monetary policy. Those 2 can never mix in my opinion. Economic is a science, and when left to it’s scientific base, it works well. Once politics is mixed with any science, the science loses credibility.
Notice how all 17 rate increases did little to affect the rate/price of the 10-yr treasury over the same term. It’s b/c real economists and bond traders know the Fed and administration were/are wrong. So they (Greenspan/Bush/whoever is the wizard of oz) kept their foot on the gas pedal to keep raising prime while the bond rate stayed low, exactly the thing they were trying to raise. The free market was fighting them the whole time, so they just kept raising the rate. Finally, the realized no matter what fed did to prime the 10-yr rate would not go up. B/c normal people in the free market did not believe the monetary policy of the government was correct. So now we have a whacked out yield curve. Go to most banks and you’ll get a higher CD rate on a 1 or 2 yr CD than a 30 yr.
On another front - The 10-yr treasury drives Fannie Mae backed mortage rates, not the prime rate. So normal people seeking mortgages have still been getting great rates over this period, thus allowing them to continue to borrow against their homes and spend it. There has been a misconception raising the prime rate has affected real estate across the board, it has not. It has affected development and investment, not the individual consumer who only has a mortgage on their personal residence. So the middle and lower class could still get loans and spend the cash-out on goods and services and fuel our economy. The biggest negative impact on real estate has been the media, who was getting the whole story wrong. If you have good credit and want to buy a house, you’re still getting a terrific rate in most cases.
Now the sub-prime collapse happens - so now lower class people cannot get loans and cannot spend the money at Wal-Mart. Note also, who usually works construction/labor, the lower-middle class. They all lost their jobs from the prime increases b/c the builders and developers went broke and could not afford to finance thier projects due to higher rates. They lose their job, cannot borrow to pay for things and get foreclosed on. I think we have minor fallout from some of the ARM’s, but it’s not the whole story.
We’re seeing the beginning of the unravelling on the system. If the democrats raise taxes and lower to middle class people cannot borrow to spend we’re in big trouble. There is a sense around the world that this is the case and nations such as the chinese are emboldened to make economic threats. The still use econonmists, not politicians. Fear and politics have driven out economic/monetary policy.
I could be completely wrong, I only took one macro class in college. Got the degree in Finance b/c economics wasn’t “cool”.
I’m sorry, but your analysis of how the central bank, politicians, and interest rates all intermingle is mostly just nonsense. I would read this book if you really want to understand this topic:
I’d respect an honest critique of what I wrote other than a one line comment w/ no counter argument. If I’m wrong I’ll admit it. I said I’m not an economist, I’m a real estate investor w/ a finance degree who took 2 econ classes, that’s it. Tell me where I’m wrong so I learn something.
Exactly what timberwolf said, except instead of a Harley most people use it to live off of and/or pay off credit cards. They rarely pay principle down unless forced to do so (typically after 5 years). Then when the HELOC draw is maxed or spent they go back to using credit cards. Then they try and refinance again to get out of it. The problem is when home values drop then people are upside down on their home, cannot make both payments, and cannot sell = foreclosure.
The orignial principle was for home improvements or many times it was a better loan than an auto/boat/etc loan one would typically get to make major purchases. It is an extremely useful tool for people who know how to manage money. In the past 5 years they became way too easy to get like most credit. I would wager the typical american household lives more off of credit/debt than actual earnings. Many households have little or no savings and are would be bankrupt if they missed more than one or two months of income.
The rich (banks) push credit so people can live rich, even though they cannot and should not. The interest makes the rich richer and the poor poorer or bankrupt, but they have nice TV’s. Thus creating the expanding devide between upper and lower class. But in a free market economy, caveat emptor. Just b/c you cannot understand your loan doesnt mean someone won’t give it too you.
Very true, as a banker i see it quite a bit. I got a credit card approved yesterday for a guy it came back from our credit department with a 12k dollar credit line. I immediately told him he should lower it because that was way to much to have as open credit on a card. All i got was a nah i’ll just keep it that way. I know a lot of bankers try to push sales and especially LOC and HELOC. Hopefully people will listen to me when i tell them its not the best idea. But who knows, we’ll see i guess.
Grant
Fine, here you go:
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The US central bank is among the most independent in the world. You assertion that politicians set interest rates is laughable.
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On the issue of the 17 rate increases not affecting the price of the 10yr treasury. The only possible way they would have affected the 10yr treasury is if the rate increases weren’t expected in the first place, which they mostly were. Name one business cycle where the fed funds rate has ever failed to reach at least 5%. Besides that, the central bank does not target a 10yr rate, they don’t have that ability - it is up to the markets to set the clearing rate and that clearing rate should be the path of the short-term T-Bill yields (which are tied to the fed funds) + perhaps some risk premium for accepting duration risk.
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You seem to believe that the increased interest rates are the cause of a lot of harm to the real estate market when in fact it was builders over-building, mortgage brokers over-selling mortgages, and people taking mortgages they can’t afford because they thought they were going to get rich on other people’s money. All of these people are responsible for driving housing above its fundamental value and creating this real estate bubble. If the Fed is at fault, it is for not raising rates high and fast enough to keep the thing from getting out of control in the first place. The Fed owes no real estate participant - not builders, not homeowners, and most of all not “investors” - low interest rates so that they can keep on overbuilding and raising up the prices of housing even further.
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If the Fed kept interest rates low, in the long-run all it would do is raise inflation and increase GDP volatility. The result would be that overall average GDP would be lower. None of these things are good. Rates are low when growth is bad in order to stimulate growth. Rates are high when growth is high to keep inflation in check. That is how it works.
Fine? I’m just trying to have a discussion. Everyone gets so pissed off here. Try not to read a tone into this, there isn’t one. Thanks for repsonding.
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I did not say politicians set rates (you’re right, that is laughable). I do think they have some influence on the policy that comes out of the fed though. I made a statement something to the effect that to think politicians and any presidents administration has no influence is naive though. The federal reserve and central bank had much more independence when they lived in obscurity. Since Carter and Volker in the late 70’s early 80’s the position of fed chairman and the role of the federal reserve had become a highlighted position and organization, respectfully. They feel pressure now, and maybe that’s not a good thing. Just like the supreme court feeling political pressure, not good IMO.
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I’m not disagreeing the rate should not have been raised as we could not live with 1% prime w/o other problems surfacing. I wasn’t seeing a real reason come out from Greenspan at the time as to why he was doing this every quarter for 2 years. He would talk about housing and inflation/stagflation mainly, but their attempts to be vague/secret about it maybe did more hard than good. I still am not sure what he/they were doing. I don’t think that’s good in a free market. Maybe I’m too stupid to figure it out, but I can read, so a simple statement would have sufficed.
I understand they would not have changed 10yr rates since they kept announcing the rate increases and future biases and thus traders/futures were immeidately priced into the treasury/money markets. I found it ironic the 10yr rarely reacted much and sentiment seemed to disagree with them most of the time. Maybe that was the market wearing rose colored glasses? Again, it may have helped if AG and the fed if they weren’t so vague/secret at the time.
- I think raising interest rates included with the other 3 points you made did it, so we agree. Builder’s could not build fast enough here in St.Louis, there are many unfinished subdivisions and bankrupt builders here. Mortgage brokers, well that’s obvious, used-car salesmen of housing. And people usually make the wrong decision if given one with money it seems, so many uneducated people over-levered and cashed out their home on an ARM and are screwed. We have a huge foreclosure rate here.
I think the over-buying and lack of risk analysis in the CDO market has some blame as well. The hedge funds and pension plans that bought these securities backed w/ bs loans are going to feel the hurt now. The saving grace may be the fact the treasury had the screws to Fannie and Freddie so they couldn’t buy this crap. Can you image the problems if they were buying this at the same rate as these other guys?
Basic greed on the part of all parties involved wrecked it.
Again, I view the Fed from the eyes of an investor, I cannot make as many investments or risk capital at higher rates, so it slows my ability to grow. I wonder how much this credit upheaval has hurt the entreprenuer and self-employed. It would be interesting to see how much of the foreclosure market those people make up, along with their employees or subs. I know personally it has hurt my business, we have no wage increases, laying off workers, not investing or doing new projects, and have problems financing projects. I’m taking on break-even projects to stay in business right now. Makes me think about getting a “real job” sometime.
- I agree, I just think we didn’t need to go this high this fast. We oversteered and needed a countersteer sooner. We went from inflation risk to recession risk. I think the fed is learning how to steer it in between the lines.
– What is your opinion of the treasury using an increase in the money supply (at increased rates) to make repairs in the short term? Do you think that is a useful tool? What do you think the proper solution(s) is(are)?