How big of a crisis should we expect?

Treasury Secretary Tim Geithner said we would not have another Lehman-caliber meltdown on our hands. But he never said there wouldn't be pain.

By Jim Cramer Sep 23, 2011 8:19AM

the streetDoes it do any good to say that the world is on the eve of another financial crisis, as I hear so many people saying? Does it do any good to catcall me for saying that Treasury Secretary Tim Geithner was just being upbeat and hopeful when he said there will be no more Lehmans?

 

No and yes. No, it does not do any good to proclaim we are on the eve of the next financial crisis, because it's the degree of crisis that matters. People seem to forget that the center almost didn't hold during 2008. It was only the destruction of trillions of dollars of capital that allowed us to bottom, with a tremendous number of financial institutions in this country being wiped off the face of the earth, including many that had been with us for some time, including Bear Stearns, Lehman Bros., Merrill Lynch, Fannie Mae, Freddie Mac and three reconstituted and quasi-nationalized companies -- General Motors (GM), American International Group (AIG) and Citigroup (C).

 

Are we going to get that kind of crisis? That's where the second point comes in, Geithner's point. There is a grave misconception about what Geithner told me last week and what I am reading, say, in the mocking Twittersphere.

 

Here's what Geithner said: There will be no more Lehmans. Europe will not let it happen. That means there will be no more catastrophes that freeze credit worldwide and pretty much wreck every economy out there.

 

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What did he not say? That there won't be shotgun marriages, Citigroup-AIG-like quasi-nationalizations and banks that are allowed to disappear gracefully.

 

He took Lehman off the table.

 

Nothing else.

 

What does that mean? OK, we call it the Great Recession. We put "Great" in because we want to analogize it to the Great Depression. We use "Recession," not depression, because we did not have 25%-30% unemployment -- remember, 91% of the people in this country are employed -- and we did not have the wholesale failure of the U.S. banking system. People forget that the issue in the Great Depression came down to whether the democracy was in jeopardy.

 

Which brings me to the second analogy: the near return to Great Depression levels in 1937, brought on by the false sense of security that we were able to raise rates, and the belief that we had to raise rates in order to "cool" the economy. Our Fed chairman understood this to be the worry, and he is still working to prevent it from becoming a reality.

 

But the Europeans are on a collision course with 1937 and even took a page from the handbook, foolishly raising rates twice. They are about to repeat the errors of the United States in 1937. Again, not Lehman but a really bad moment that will cause them to put into action what we put into action after the barn door had already been wide open: an anti-Lehman game plan.

 

There's a lot of talk about Chubby Checker right now, because the Fed chairman is doing Operation Twist, which is the lowering of rates with the hope that someone -- the government? the people? -- will take advantage of them to refinance. It's not going to work, because regulators are requiring the banks to force people to put up too much money to get those rates, and the government is stubbornly sticking by the issuance of short-term notes instead of a gigantic, liquidity-insuring offering of hundreds of billions of dollars in long-term bonds.

 

At least Bernanke is singing the right tune. In Europe, though, they've got a different crooner going. It's all about Sam Cooke, and the central bankers there clearly "don't know much about history." Which of course will then lead to "A Change Is Gonna Come," and it isn't a good one.

 

So, remember, no more Lehmans does not mean no more pain. It doesn't mean no more point losses. It just means no more possibility that the center might not hold. Now if only they knew history over there and had some political will, which Geithner said is the sticking point for those who actually want to do the right thing in Europe.

It translates into staying the course, playing it with high-yield stocks and taking a beating on those that don't. If you can't stand that beating, sell some of those stocks. I know most won't, because the losses, if you bought in the past year, are now bordering on the horrific. But to get a real bottom, someone has to capitulate. Decide now if it has to be you.

 

At the time of publication, Cramer had no positions in stocks mentioned.

 

jim 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 his charitable trust.

29Comments
Sep 23, 2011 11:13AM
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I wonder how many people are aware of one of the main contributors to our economic crisis, which became apparent when the housing market started to crumble in California, where foreigners have no problem walking away from loans obtained for house-flipping speculations using fake IDs.  California’s deficit is presently nearly the same as what foreigners here illegally cost them, with more than $52 million in welfare checks given to foreigners for their anchor babies EVERY MONTH in Los Angeles County alone.  The cost of educating, providing free health care and monthly checks for the offspring of millions of foreigners who have no respect for our laws (statistically they have twice as many children as citizens) is eating us alive, while many law-abiding citizens having to pay taxes, provide their own medical care and support their own families are driven to poverty trying to compete with the foreign competition who consume all the U.S. government handouts they can get.  Would our country even be in crisis if not for the millions of foreigners here illegally, many paying $thousands to smugglers for the opportunity to exploit U.S. taxpayers?  Not surprising, Obama (who has illegal immigrant relatives from Kenya here on the dole, also) is doing everything in his power to ensure this travesty continues.

Sep 23, 2011 12:25PM
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the source of our problems is absence of leadership. at every level. scary times indeed.

Sep 23, 2011 10:29AM
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91% of the population employed??? How can that be reported as a fact. How about you try using only about 82% of the population in this country is employed.

Sep 23, 2011 10:52AM
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Have you noticed that our leaders are really afraid to talk about Canada?  No major problems up there.  How come?   Could it be the Canadians haven't spent 10 TRILLION on the military in the last ten years?  Or could it be they make people buy houses with a large down payment?  Or could it be because they believe in manufacturing jobs? Or could it be even the right wingers up there like their health care system?  Nope, shhhh...don't mention Canada.

 

We are to Canada what Mexico is to us.   It's very sad.

Sep 23, 2011 1:16PM
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Another LIE.....Employment in the country is more likely in the 19 or 20% range, not the fairytale 9.1% statistic the government or Cramer would like you to believe. Aside from that we also have another 15-20% who are under employed, and yet another large percentage of people who are fully employed but whose wages have flat lined and haven't kept pace with inflation. Today's lack of demand in the market place isn't an accident....its math. Our faltering economy is a product oppressive government and consumer debt burdens coupled with the delusion that we can experience unending growth with fake money on a finite planet forever....Its all a myth, a mathematical impossibility.

You can put lip stick on the pig all day long but it won't change the reality. Anyone who understands the concept of peak oil and fraudulent fractional reserve banking understands this reality well. If you don't change the way money is created, you change nothing. All that is happening today has already been predicted with deadly accuracy for at least a decade. The post modern economic paradigm we built on cheap petroleum and debt money was unsustainable from the beginning, thus doomed to fail in the end....so take a good look folks...this is what the end looks like.
Sep 23, 2011 1:20PM
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People keep saying the Europeans "have no political will". This is hogwash. The Greeks, Italians, et al have a will to keep on spending more than they take in. The Germans have a will to stop paying for this free ride. We shall see who will prevail.
Sep 23, 2011 9:58AM
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unemployed, underemployed, working under the constant threat of unemployment, temp jobs with no benifits, companies closing their doors, streets with boarded up shuttered small businesses.  i think you're a bit out of touch with what the regular usa citizen is seeing cramer. 

 

OK, we call it the Great Recession. We put "Great" in because we want to analogize it to the Great Depression. We use "Recession," not depression, because we did not have 25%-30% unemployment --
Sep 23, 2011 12:41PM
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What surprises me is that everybody thinks that it is the situation in Europe is the big problem.
Mr. Geithner came to Europe and they told him clearly why they are in better shape than the US.
No wonder he did not make many statements after the conference was over. Cramer thinks that the Europeans do not know anything about history, which is another statement that underscores that the US does not know very much about the situation outside the US.
The US is having a very serious debt problem and talking about Europe that also has a debt problems is like going in denial in order to avoid dealing with your own problems.
It is really surprising that the only solution that the US seems to have is to print more money and increase the debt even more in the hope of a rebound in the economy. Everyone knows that there is not too much of that money flowing in the economy because nobody that is cool in his mind thinks of taking on more debt despite these low rates.  Banks however are trying every trick to profit from a volatile market situation in the stock and foreign exchange markets. Its a very dangerous game. Remember also that it where large American banks that sold huge amounts of MBS investment paper with high credit ratings to European Banks who than went into the European Banking crisis and European Governments had to bail them out with loans. This saddled many European governments with extra debt that even worsened as a result of the economic slow down and the European recession. North Europe is doing well, South Europe is not doing so well. In the US you have also States and towns that are technically bankrupt and the federal government is bailing them out and sets conditions for that. (ex. California) Nobody cries wolf about that but they do about Greece which is a tiny state compared with California.
The Euro has suffered but actually overall less than the dollar has suffered. The Euro started about 0.85 to the dollar and is now around 1.36 to the dollar. So the USD has devaluated about more than 40% versus the Euro. At a certain point the Euro was worth 1.45 USD!
I think that the US will reduce its debt by further devaluating the USD. This process is already going on for a long time but is now accelerating as a result of the debt increase.
I wish the USA a lot of courage and hope that in the end you will get your economic recovery soon because the US and the World need this. Tell however to your Politicians and economic Gourous to hold their **** and start doing something intelligent.
I fear however that they have no clue about what to do and this is also very dangerous.

Sep 23, 2011 10:35AM
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With europe on fire it is interesting to listening to what our politicians are doing. Threatening to shutdown the government  and continue the gridlock and brinkmanship we have experienced for the last decade.Much of the lack of confidence many say is contributing to economic uncertainity has been created by the worst congress ever. 2012 may be too late to vote out all poiticians who have turned their backs on the american voters and helped destroy our economic security.Buy American and support our returning Troops.
Sep 23, 2011 3:18PM
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    America is being raped by a corrupt corporate and financial system that is completely out of control. Our big banks with billions in assets have been getting billions in 0% loans to play the market. These same pigs that caused our meltdown are manipulating the commodities market and driving up the price of gas on our hurting people. Everyone knows this;  But, nothing is done to stop it. Banking is using our own money to rob us.

    No one should pay a bank 600k for a 200k house when the tax payer backs the loan. All such government guaranteed loans should be made directly for a low interest. This would reduce home buyer and studenr notes by more than half and leave trillions in the hands of our people.

    Our big corporations are making record profits from slave labor and paying low to no taxes. They are getting special treaties tax breaks and all possible help to outsource. These giant hogs are holding 3 trillion shareholders money.

    When the CEO of Disney made 600 million in salary and God knows what in bonuses had children in Haiti working for 12 cents and hour. Government and anyone else that supports this insane greed are contributing to the destruction of America.                                             

    We need to force our public owned corporations to pay our minimum wages wherever they go. This would be a good starter for bringing back jobs and showing a little respect for workers. Germany has labor represented on their corporate boards and the are now the second biggest exporter in the world.

    It has become obvious that banks, wall street and big corporations run our country. It is equally obvious that they own our government.. The self seeking  pigs will destroy our nation and all its great potential if we don't unite against them. They are united, they love slave labor and know exactly what the want. "Everything."

Sep 23, 2011 10:11AM
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“Pretty much the western economy is in the dust bin of history folks”

 

No name, I pretty much agree with you. Not because it is impossible to correct but because there isn’t the political will to do what is needed. That’s because it will be painful but of course not as painful as a hyperinflationary depression. Soon we will be up close and personal with a third world existence. What a shame.  The destruction of the most advanced high tech economic system in history is IMHO a crime that ranks right up there with the worst ever committed on this planet. It will cause untold misery and death.

 

I still think Cramer is a good individual stock picker. He can spot a good tree but doesn’t realize that the whole forest is now on fire.

 

Sep 23, 2011 11:15AM
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The Fed. has set this down fall up with low interest rates that make the tax payers pay to make more millonairs on Wall street.

 

Sep 23, 2011 9:51AM
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Nobody cares what you or Tim Geithner say, your both crooks.
Sep 23, 2011 9:47AM
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Who cares what you or Tim Geithner say?? Your both crooks.

Sep 23, 2011 11:28AM
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@ bgdog   I like  what you say about  America and the troops but 3/4 of those guy should not even be there .do you know what it cost just to put them in gear. I think most are there because its the best paying job they could find at the time, and that sucks for all. the cost is to high ,to many intitlements.     I hope I am wrong 

Sep 23, 2011 11:09AM
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Jimmy ; I did not see you this morning with Carl and Melissa . This should become permanent. You are 2 overexposed with nothing but bad news. Keep looking for the bulls even if your wrong . You say your seasoned , pull a rabitt out of your rolled up sleaves, and let that bald head shine upon cramerica
Sep 23, 2011 11:24AM
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Nope, shhhh...don't mention Canada.

Could be because they have a key set of demographics shared among the stable advanced nations?

 

Norway, Australia, Canada...

 

1) Small populations 2) Overabundance of natural resources relative to population, that is paying off huge in the commodities sector (because prices have been driven very high), 3) No environmental laws to stop the exploitation of those resources.

 

......

 

Sorry. It's not cause their governments have "figured it out" or that they have "manufacturing jobs" (that's actually quite funny, all those countries have very small manufacturing sectors). It's because they export their natural resources.

 

And that allows them to have a large amount of flexibility. Oh sure, they've put those funds towards good use. Norway keeps a soveriegn fund for the population, Australia bankrolled it's social security about 15 years ago, and Canada gives the benefits back to some of the population.

 

They happen to be lucky, that's pretty much it. The middle east sits on one of the most precious resources of our time. Do we think they are just the best countries ever?

Sep 23, 2011 12:10PM
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what a pleasure to watch the ticker this morning without the idiot diareahing all over the set about buying high yieders and $1900 gold
Sep 23, 2011 2:23PM
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The  negative results of this administration are glaring.  Can be so blind as to fail to see this administration is directly in the way of recovery in American industry and jobs for the unemployed?

That is why Obama, for the welfare of the American people must do the honorable thing now and resign.

Sep 23, 2011 11:59AM
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so if i buy a "high yielder" that yields 7% per year and the market goes down 7%

in 2 days why is that a good strategy when the sds is going up 14% in 2 days?

 

i think cramer failed arithmetic

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