Officials should warn about policy implications

Our leaders should be encouraging more prudent behavior among less sophisticated investors.

By Jim Cramer Jun 26, 2013 9:49AM

thestreet logoWhy can't someone in government just warn a guy? Why can't we see some leadership from someone just using the bully pulpit instead of insisting on legislation or a quorum or a level of opacity that does no one any good?

 

Right now the U.S. is gripped by a total lack of what I would call authority. I'm talking about people in power using that power to get things done through suasion, not just through meetings and votes and the straitjacket of regulations.


For example, take the Federal Reserve. It was kind enough to give us a heads up about how it is going to let the yield curve revert to a more natural position. But Chairman Ben Bernanke, in one of his myriad speeches, could have simply said: "You know what? Those who are reaching for yield are going to get stung when we switch." How great would that have been? Just those simple words would have been a delicious shot across the bow that would have let managers know there's going to be a world of pain if they continue to do stupid things to get a little more juice to their returns.

 

Bernanke could have coupled that with a statement -- perhaps via go-to journalist Jon Hilsenrath of The Wall Street Journal -- to people using emerging-market money funds as a way to stretch yield. He could have simply told them that when they switch they will probably lose more than they would have realized -- perhaps intimating, "The door will be too small to places like Thailand or the Phillippines or anywhere else that's running an accounts deficit when we go less accommodative."

 

Arrows and Lights © DAJ, amana images, Getty ImagesYou put these managers on notice, and then the clients can act as a pressure point on them, reminding those managers that they don't want that kind of risk.

 

The Fed chief could have also issued a warning to folks using ETFs in search of yield, letting them know they will be roughed up. While he was at it, he could have also said that bond funds might not be as safe as people think they are.


Why not do this? Why not explain the hazards of what people are doing? Before you say that Bernanke did do this, I know I haven't heard from a soul who feels he has been warned. I also know there are plenty of reckless managers out there who might have reined in their recklessness, thus making the pain more palatable.

 

Or how about the Securities and Exchange Commission? SEC head Mary Jo White could have said that, while the Commission itself may not be able to agree on the insurance of money funds, it's her intention -- when push comes to shove -- to make it so that nobody who reaches for yield will be protected. Why can't she tell us this? All she has to do is say that the lobbying efforts have made it hard to stop but that she will not make life easy for those who do this.

 

Or how about Gary Gensler, the head of the Commodity Futures Trading Commission? He could have given a speech saying that people who buy newfangled collateralized debt obligations, if they creep back, are idiots who will get hurt if they do. Call them idiots. There's nothing wrong with that. There are a lot of idiots out there. Or why doesn't Gensler talk openly about how the industry wants opaque swaps because they can gaffe the clients more easily with higher fees? Savvy people know this. The more stupid clients don't. 

In other words, why don't regulators give speeches warning both managers and clients about stupid things they do that hurt the system? That way, they can tamp down on their own bubbles in their own industries and they can warn dumb clients that they are going to be crushed and that they'd better be vigilant. You can't legislate out morons, but you can call them out and make people realize when they are doing something that could put the system at risk.

 

Instead, they stick with the process that tends to be captured by the industry itself -- and if there is one thing we know about the financial services industry, it's that these firms will not do what's responsible. They'll do what's most profitable. Therein lies the real problem.

 

Just spell things out, either publicly or behind the scenes with background interviews. In this way, the parties that could jeopardize the system can be held at bay. In this way, all of us will be better protected than we are now from the shenanigans and the foolishness that breed bubbles and cause pain and loss for all the good guys who try to be prudent but are upended by the greedy and the reckless.

 

cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.

 

 

 

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103Comments
Jun 26, 2013 11:00AM
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How about this for clarity (paraphrasing Grant Williams):


"The Committee has decided to confiscate your savings through ZIRP and inflation so you will be forced to invest your money in risky assets, which policy we hope — oh how we hope — will stimulate some growth. We understand that you may think you have the right to live off the interest on the nest egg you have so carefully saved over your working life, but right now the needs of the many outweigh your own.

Because we at the Fed really have no idea what we are doing or its consequences, it is much more sensible for us to be as vague as possible in our choice of language so as to leave room to change course when the magic pixie dust we are sprinkling on the world turns out to be largely ineffective, or even catastrophically detrimental."
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Ben can't just spell it out, he has to inform those at the top, politicians, corporate heads, and industry leaders first.

The individual investor and his savings/ retirement find out last. Politics as usual.

Jun 26, 2013 10:22AM
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This is two days in a row you are spot on in my opinion Jim.  Although two days doesn't create a trend your wave length and mine are beginning to line up.  Where we diverge are the 3.5 billion citizen workers in the Asian rim that are guaranteed no ands, ifs, or buts to drag our standard of living down to theirs.  We need to cut lose from this free trade debacle but it will never happen.  Our elected officials have sold us out period.  There is absolutetly positively no escape from collapse of our financial infrastruture. The primary reason those in the know can never speak openly and honestly is that they would be seen as the traitors to the vast majority of Americans they are. Once we can no longer afford to borrow and spend a $trillion extra every year plus the trillion the FED is cutting out for QE we will be forever a second rate economy. You can kiss social security, education, and a belief in a better tomorrow goodbye. The New World Order is the only rational explaination.  The secret arrangement among the rich and most powerfull in the world to once and for all end the reign of freedom for people represented by an elected form of guberment of the people, by the people, and for the people.  We are witnessing history right here and now in our lives.  We will now see an ever increasing compression in our economic activity.  Deflation will rob the next several generation of their economic opportunites and dreams of a better tomorrow.  All for the New World Order that we were misled, duped and uninformed about the whole time by our elected officials as they have been agreeing to and participating in behind closed doors.  I'm sure many who read this will pass it off as psychotic conjecture or fabrication because yes it is so hard to even imagine that this could be done to us by people we trusted to represent us and our families best interests.
Jun 26, 2013 11:23AM
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We've got all the warning we need now - 1.8% GDP growth in Q1.  Ouch!  And you can't even blame that on the sequester, which happened in March.  1.8% growth comes out to roughly $300 billion per year, or about $75 billion in Q1.  There was $255 billion in QE during the same time period!

So help us out here, Keynesian progressives, what are the talking points going to be on this one?  Europe is dragging us down?  Maybe it's Asia's fault?  Could be those darn Right to Work states cramping our style?  Hangover from Hurricane Sandy?  Maybe we'd get more growth if only we'd raise taxes, right?  Don't forget to blame the House Repubs, too.

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Gee Cramer what is wrong with you???

 

If not for the Federal Reserve throwing $4 trillion dollars into the USA economy on balance sheet and an estimated $25 trillion off balance sheet (done off balance sheet so people would not wonder why the super rich got $25 trillion dollars richer while they lost their jobs and their houses) the stock market would be hitting about 200 on the Dow right now.

 

Unfortunately for us all this spending is going to come back and collapse our economy. The BRICS have a conference coming up on how to negate the US QE3 effect which basically means they will quit trading with us. After all China can now print monies to infinity just like the US Federal Reserve and China has the backing of manufacturing while we merely have the backing of $17 trillion in Federal government debt about $250 trillion in unfunded liabilities in the near future.

 

Yep things are looking very grim for the US economy. A staged collapse is coming soon folks.

 

 

Jun 26, 2013 11:00AM
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uhh, probably same reason why talking head market commentators (such as who write for thestreet.com) omit from their commentaries that if you listen to my advice you have 50% chance of making money and 50% chance losing money in exact proportion to throwing a dart
 
Jun 26, 2013 11:09AM
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I heard yesterday..That O'twinkles "lampooned" our Coal stocks, once again..Wish he would STFU.
Jun 26, 2013 11:23AM
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On to something more interesting...

 

Heidi Klum is getting a tattoo removed....I would like to get in, on that action.

Jun 26, 2013 1:41PM
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Someone should warn investors on the dangers of listening to Cramer too...
Possibly a heavy-duty psychiatrist
Jun 26, 2013 1:30PM
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Why don't we just have the terrorist take out a newspaper ad too Bobo to warn everyone in the market about a pending attack so it won't disrupt the precious stock market?
Jun 26, 2013 11:35AM
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All those stock brokers that did not see Bernanke's move at the fed should read economic 101. The fed made the right move at the right time. The smart people got out of the stock market 4 months ago. However, don't worry the American stock market may be volatile for a while, but it will come back. The first thing to be destroyed by socialism (printed money in the financial industry) is the brain.
Jun 26, 2013 12:29PM
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Mr. Cramer has a doctoral degree, but he writes like a challenged lad.

 

He decries regulation of the markets - calls it a "straitjacket" -  yet thinks Bernanke is remiss for not stating the obvious.

 

Smart people and those of good will need regulated and monitored markets for the same reason a bank needs armored vehicles to move the negotiable instruments, and a Federal Reserve branch needs its gun nests up in the corners (don't wave). Smart people don't need to be told the obvious.

 

Is Mr. Cramer's issue one of mental acumen? Or could it be one of good will?

Jun 26, 2013 3:50PM
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Hey Cramer............ let's get god to send us word before every major natural catastrophe so we can guard against the stock market sinking.
Jun 26, 2013 10:53AM
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Fatty when the hell are you going to get a real job...??

 

You missed a spot Swabby..har,har.

Jun 26, 2013 5:48PM
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A little off topic here but . . . the government finally has two profit producing enterprises in FNMA and FHLMC both on schedule to pay back all the money they borrowed plus produce strong profits for decades to come (as they have for 80 some years leading up to the financial crisis), not to mention continue to support home ownership and the economy as a whole. Yet those that fear another meltdown (completely misguided as the loans that caused it went away literally within months of the crisis beginning) can't wait to get ride of them and the "risk" they carry. Absurd!

 

Fannie and Freddie are tremendous companies and should be left virtually untouched. Too big to fail is here to stay - at least these two companies will make the tax payers money. I just don't get the twisted logic of the federal government - they can't see a good thing when it hands them 60 billion a quarter.

Jun 26, 2013 3:29PM
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Great call the last two days Jim.

Today's is especially important given that most individual investors, with the dissolution of pension funds, are completely on their own. Many do not have the inclination, skills or time to "manage" their own funds so easily can fall prey.  The collective community thus needs to take some responsibility to tell the financial truths for all to hear. 

Jun 26, 2013 11:13AM
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Bad jokes aside .....out of interest did any of you guys ever wonder why the Feds never said who it was who bought the UAL & AA Puts ??? My recollection was they said it was part of a normal hedging strategy but that kinda seemed like **** to me as apparently the amount of Puts purchased were in the hundreds of thousands and the time value was only a couple of weeks.

Interesting ....
Jun 26, 2013 10:14AM
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""why don't regulators give speeches warning both managers and clients about stupid things they do that hurt the system?""

 

because within seconds of such a speach or anouncement people in either political party will claim it's a scandal or manipulation or insider trading. 

 

best to leave it alone and let the chips fall where they may

Jun 26, 2013 12:41PM
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Why do investors need a warning?  Aren't they doing research before tossing money around?  *HAHA*
Jun 26, 2013 1:52PM
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Just a little Market Talk to break the Ice...Or the same old Ho-hum..

 

Speaking of Ice....Yup that may be a good move, looks like you are following Warren a little bit..

Good divvie and cheaper then COP...Good luck.(might have a good comeback).or appreciation.

Warren isn't wrong to often, and I also like some of his Companies.

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