Jim Cramer, Capitalism's Snake Oil Salesman

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    Jim Cramer, the host of "Mad Money" on CNBC,  appeared last week on MSNC's "Morning Joe" to tout his new book, Get Rich Carefully. In a fawning, congratulatory interview, Cramer was praised for his financial acumen by that show's host, Joe Scarborough. Not a word of criticism was uttered about Cramer's past adulation for CDOs, securitized derivatives, default swaps, "puts" and the variety of other exotic Wall Street financial instruments that contributed to the recent meltdown of the U.S. economy.

     Scarborough was the perfect shill for Cramer. A former Congressman from Florida, Scarborough now proclaims himself to be a "moderate" Republican. However, when he served in Congress, Scarborough endorsed Newt Gingrich's ill-advised "Contract with America;" supported legislation to eliminate the Departments of Commerce, Education, Energy and Housing and Urban Development; sponsored a bill to force the U.S. to withdraw from the United Nations after a four-year transition; voted to defund the Corporation for Public Broadcasting; and voted against the "Small Business Job Protection Act" of 1996 that increased raised the minimum wage to a pitiful $5.15 per hour.  

    Cramer, the consummate huckster and exuberant proponent of the carpe diem school of investing, is perhaps the personification of everything that has gone awry in the U.S. economy since the 1970s. His present acclaim demonstrates the extent to which the power wielded by the barons of the electronic media and their surrogate celebrities, because of their command of the airwaves, are able to reshape perceptions of economic reality, redefine the historical narrative and rehabilitate tarnished reputations.

     Just before its collapse, Cramer sought to assuage those concerned about the financial well-being of Bear Stearns. In his March 11, 2008 show  a viewer submitted a question "Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?" Cramer responded "No! No! No! Bear Stearns is not in trouble. "Don't move your money from Bear! That's just being silly! Don't be silly!" Cramer and CNBC subsequently defended his statements, arguing that Cramer's assertions on the bank were a reference to a viewer's question on Bear Stearns' liquidity, not its stock prices.

     Long before Jon Stewart reduced him to an object of ridicule, Cramer had demonstrated a propensity to overstate his expertise and to bestow the mantle of credibility upon the utterly disreputable. On September 15th, 2008, to cite one egregious example, Cramer welcomed the CEO of Wachovia, Robert Steel, onto his program. Cramer enthusiastically recommended the stock after Steel failed to disclose a pending sale of his company. Two weeks, Citibank announced that it had acquired Wachovia. That acquisition caused the value of the stock to drop from $10 to less than $1 between on September 26th and September 29th.  Cramer apologized to his gullible viewers because he had "let them down."
    An article by Alan Roth in Money Watch ( "A statistical look at Jim Cramer's predictive skills," May 27, 2013) documents that Cramer's predictive skills have not improved since the financial meltdown. Nevertheless, CNBC continues to praise his financial insights. Roth quotes Roger Ehrenberg, the managing partner of IA Capital Partners in New York to the effect, "He [Cramer] kind of puts himself forward as the champion of retail investors, but had they listened to him on the [Bear Stearns] call, they would have lost a lot of money.... He empowers people to feel confident about buying and selling individual stocks, when in fact most people are ill-qualified to invest in that manner." Roth also reported that Ehrenberg and others believe that Cramer's show may encourage small investors to make frequent trades when it is really in their interest to invest in mutual funds and hold them for long periods of time.

         Cramer's adulation for Wall Street needs to be viewed in the context of the lingering Great Recession, which was fueled in large part by the rollback of economic and financial regulations that began in the Reagan administration and continued through the administrations of Bush 1, Bill Clinton and Bush 2. Although he cautioned against "irrational exuberance,"Alan Greenspan, a former disciple of Ayn Rand and an advocate of Milton Friedman's monetarism, in his capacity as chairman of the Federal Reserve, became the cheerleader for the retreat from fiscal sanity. His gushing endorsement of laissez-faire economics and his blessing of Wall's Street's excesses were quickly echoed by Cramer and others.

    The economic data shows that, as a result of poor public regulation and oversight of the financial markets, between June, 2007 and November, 2008, Americans lost more than a quarter of their net worth. By early November 2008, the S&P 500 had, declined 45 % from its 2007 high. Housing prices dropped 20% from their 2006 peak and total home equity in the United States -  which was valued at in 2006 at  $13 trillion -  declined to $8.8 trillion by mid-2008.In addition, the total of retirement assets held by Americans declined by 22 %, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period of time, non-retirement savings and investments lost $1.2 trillion and pension assets lost $1.3 trillion. The consequences to ordinary Americans were staggering as the net worth of U.S. households and non-profit organizations declined by 22% or $15 trillion.
    Sadly, while the Tea Party emerged ostensibly in response to the excesses of Wall Street and the government's bail-out, the anger of its members was quickly deflected by the right-wing noise machine to oppose any form of government regulation in the public interest, including further financial regulations.  Hence, Wall Street and Jim Cramer won again.

    The historical record  provides an invaluable insight as to what has gone wrong gone with the U.S. economy after World War II. According to Federal Reserve data in 1947, the U.S. financial industry accounted for about 10% of the total non-farm business profits but,  by 2010, the financial sector accounted for 50% of the total of all non-farm profits. Equally disturbing, while in 1946, the US financial sector was reported to owe $3 billion of this country's debt, or 1.35% of  GDP, by 2009, its debt had increased to $15.6 trillion, or 109.5% of GDP. By all accounts, the financial sector of the U.S. economy has now become the tail that wags the dog.

    The exponential growth of the financial sector and its distortion of American economic priorities is exemplified by the passage of the Employee Retirement Income Security Act of 1974, which has had a number of pernicious effects. Under ERISA, minimum funding requirements were established for defined benefit plans - traditional employer pension plans. As the promulgation of complex reporting rules and compliance requirements became more onerous, increasing numbers of employers chose to abandon pension plans and instead opted to offer their employees defined contribution plans - e.g. , 401K plans - the portfolios of which are managed by financial advisors and investment companies. The effect has been to dramatically place the burdens and risks of retirement investments upon ordinary employees who often have little knowledge of the vagaries of investing while simultaneously guaranteeing enormous fees to the managers of those portfolios.    The enactment of the Pension Protection Act of 2006 (PPA) during
Bush II further contributed to the demise of traditional pension plans.

    Jerry Geisel, in an article for WorkForce ("Fewer Employers Offering Defined Benefit Pension Plans to New Salaried Employees," October 3, 2012), reported that, as  of June 30, 2012, only 30 percent of Fortune 100 companies still offered a defined benefit plan to new salaried, a figure that was down from 33 percent at the end of 2011, 37 percent in 2010 and 43 percent in 2009. Geisel noted that, as recently as 1998, defined benefit plans were the norm among the nation's largest employers, at a time when 90 percent of those Fortune 100 companies offered traditional pension plans to new salaried employees.

    The repeal of Glass-Steagall Act during the Clinton administration was a further blow to the public oversight, as it removed any existing restrictions of the commercial banks and their bank affiliates from engaging in speculation in securities. As a result, investment decision-making and liabilities became more opaque, as the stock market became ever more volatile and less accountable to individual investors.

    Simultaneously, as Wall Street became the center of hyper-frenetic activity, critical segments of the American economy - most notably manufacturing- were out-sourced or subjected to leveraged buy-outs by equity firms as wages stagnated or declined. Equally a source for concern, as taxes on the wealthy and their investment income have been significantly reduced, investment in basic R&D, infrastructure and other essential public goods has declined precipitously.

      The mutation of the American economy into an investment bazaar dominated by Wall Street has contributed to rise of what Kevin Phillips has described as the "new indentured servitude." At the same time, the growth of plutocracy has largely been met with silence on the part of most members of the economic elite and grudging acquiescence by Spiro Agnew's "Silent Majority." The most likely explanation is the tenacity of the myth of the self-made man. Most Americans still cling to this fantasy - which is a resilient exemplar of the powerful influence that the liberal ideology of individualism continues to exert in the consciousness of Americans to the present.

    Jeremy Rifkin described a Newsweek poll of 750 American adults conducted by Princeton Survey Research Associates on June 24 and 25, 1999. Fifty-five percent of all of the respondents under age thirty who were asked whether they believed that they would become rich, answered yes. When asked, as a follow-up question, however, how they would get rich, 71 percent of the same respondents, all of whom were employed, did not believe that there was a chance that they would become rich from their current employment. Seventy-six percent of them believed that Americans were "not willing to work as hard at their jobs to get ahead as they were in the past." This belief persists to the present, despite all of the data compiled by the O.E.C.D. which  shows that American workers are at least as productive but work longer hours with fewer benefits and vacation time than their European comparators.

         Since the advent of the Protestant Reformation, as R.H. Tawney and Max Weber have chronicled, there has existed a pronounced link between the dour predestination of Calvinism and a work ethic which has emphasized material success: The accumulation of wealth was incontrovertible evidence that Providence had blessed the successful and marked each as one of those as chosen for redemption. In the United States, an entire cottage industry of books from Horatio Alger to Norman Vincent Peale and his successors have extolled the power of "positive-thinking" as the key to personal advancement.

    As opportunities for a secure retirement as well as financial success in the workplace have vanished for many Americans during the later part of the twentieth century and in the first thirteen  years of this century, no one should be surprised to discover that rampant speculation, get-rich schemes, real-estate "flipping," day-trading, the purchase of lottery tickets, and gambling became the substitute vehicles for this pursuit of success. They continue to fuel the fantasies in which ordinary citizens invest their dreams and hard-earned money.

     Given the current economic malaise, Jim Cramer performs a pivotal role as the high priest and celebrant of dysfunctional capitalism. In an increasingly secular culture, the likelihood of some future heavenly reward is discounted by growing numbers of Americans. But in an increasingly unequal and mean-spirited economy that promises to reduce millions of citizens to "road kill, Cramer offers a gospel of prosperity and economic salvation to all of those who choose to close their eyes and to imagine immediate financial independence if only they can successfully pick the right stocks - before rumors, hunches and the algorithms of computerized trading depress their value. To the extent to which Cramer's gospel of prosperity is embraced by ordinary Americans, the likelihood of any serious discussion about the need for real structural change in our economy becomes even more remote.
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