Cramer Was Right

The Federal Reserve released the full transcripts of their meetings from 2007 today. While the minutes are released a few weeks after each meeting, the public can’t see the whole transcript for until five years have passed. That’s why we’re getting 2007 today.

In August of 2007, Jim Cramer made news with his famous “they know nothing rant” on CNBC. While he was broadly mocked for his outburst, Zachary Shrier makes a good point — Cramer was right. The Fed was clueless. The one from August 7th is particularly damaging,


I have talked to the heads of almost every one of these firms in the last 72 hours and he has NO IDEA what it’s like out there. NONE! And Bill Poole, he has NO IDEA what it’s like out there. My people have been in this game for 25 years and they’re LOSING THEIR JOBS and these firms are gonna GO OUT OF BUSINESS and it’s nuts. They’re NUTS! They know NOTHING! This is a different kinda market. And the Fed is ASLEEP. Bill Poole is a shame, he’s SHAMEUL! He oughta GO, and READ the Accredited Home document, at least I READ the darn thing.

Here’s Dennis Lockhart speaking during the meeting of August 7, 2007:

In the past few days, I have had substantive conversations with some well-positioned credit market observers, including managers of large investment portfolios, suggesting that the skittishness of financial markets is not likely to abate until later this fall. They have suggested that the choppiness in financial markets will be the rule in the near term and, very important, that the threshold for what constitutes a shock is now much lower than usual. I believe that the correct policy posture is to let the markets work through the changes in risk appetite and pricing that are under way, but the market observations of one of my more strident conversational counterparts—and that is not Jim Cramer [laughter]—are worth sharing. This party sees problems in the subprime structured debt market spreading to the CLO leveraged-loan market and, in a knock-on effect, to repo and commercial paper markets as well as to investment-grade corporate credit. This party points to nonprice rationing, commercial paper rollover risk, and general CDO contagion caused by the damaged credibility of rating agencies and contraction of collateral values. This party argues that treating the widening of credit spreads as normalization ignores substantial subsurface potential dislocations as evidenced by the collapse of American Home Mortgage Corporation. All that said, another counterpart noted a large pool of money now on the sidelines that is ready to provide financing for reasonable deals if prices fall low enough. Importantly, a large portion of this money comes from reliable long-term sources of investment, pension funds and insurance companies. Notwithstanding some descriptive rhetoric, this is not the credit crunch of the late 1980s, when the traditional financial intermediaries were strained for capital. The traditional investors are still out there with substantial liquidity, and they are just temporarily on the sidelines for understandable reasons and, barring further shocks, should return to the markets in force later this fall. The dislocations in the financial markets call for a posture of vigilant monitoring of developments but nothing more for now.

Posted by on January 18th, 2013 at 1:48 pm

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