Majikthise

Jon Stewart to Jim Cramer: We are capitalizing your adventure

Jon Stewart of the Daily Show schooled Mad Money host Jim Cramer of CNBC last night.

By the time Cramer came on the show, Stewart and Cramer had been feuding publicly for several days.  Cramer was trying cast himself as a humble financial professional who made mistakes, but who is trying to reform a broken system from within.

Stewart confronted Cramer with video clips of his own past admissions about the conduct as a hedge fund manager.

So, it was a stroke of sheer genius on the part of Stewart and the Daily Show writers to load up these clips from The Street showing Cramer the hedge fund manager confessing that when he held a short position, he would create some spurious activity to artificially drive down the price of that asset. "It doesn't take much money," old hedge fund Cramer says in the clip.

Cramer's taped statements are simple declarative sentences in the first person, but the Mad Money host still had the gall to lie to Stewart's face. Confronted with the video of his own confession, Cramer insisted that he'd never confessed, that he was merely being inarticulate in the clips.

These clips are in service of Jon Stewart's larger point, namely, that there exist "two markets"...the long-term investments of ordinary people and the short-term speculative trades of Wall Street. As Stewart tells Cramer, the former is underwriting the excesses of the latter. As a financial news network, Stewart says, CNBC should have been warning ordinary people about the threat of the second market--but instead, Cramer and his buddies cheered on the speculative frenzy.

"We are capitalizing your adventure," Stewart told Cramer:

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Pt. 2

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

The full episode is available here, but the site keeps crashing, probably because of massive web traffic.

The Stewart-Cramer interview will be remembered as one of the great televised takedowns of our age. It's a cathartic TV confrontation in which Stewart gets to express our shared anger and resentment to an unrepentant co-conspirator in the financial collapse.

Cramer's probably never going to face a judge or an SEC investigator, or even a disappointed boss--what he did as a cynical cheerleader for the parasitic speculative class was probably legal and even protected speech. But at least Cramer has to sit up there and face the wrath of Jon Stewart in front of millions of viewers. Finally, someone is being held accountable.

The exchange reminded me of Joe Welch's legendary reproach to Joe McCarthy during the Army-McCarthy heartings of 1954:"You've done enough. Have you no sense of decency, sir, at long last? Have you left no sense of decency?"

Overflow crowd at the Nation Institute's economic policy panel

Meltdown: The Economic Collapse and a People's Plan for Recovery, originally uploaded by Lindsay Beyerstein.

MANHATTAN, NY.

The Nation Institute's panel discussion on progressive responses to the economic crisis attracted a huge amount of interest.

Join Nobel Laureate Joseph Stiglitz, author and activist Barbara Ehrenreich, Black Commentator's Bill Fletcher, Jr., Nation D.C. editor Christopher Hayes and author and director of the Schwartz Center for Economic Policy Analysis, Jeff Madrick, as they debate, discuss and deliberate on the current economic crisis and what we can do to help in the recovery process.

By the time I arrived, about two minutes before the program was supposed to start, the entire auditorium was full and over 30 people were waiting on the sidewalk.

A woman in a gray knit hat said that a staffer had already come out to announce that there was no more room. But they were all still there, hoping someone would have a change of heart and let them in.

"We're wondering if we could rush the door," the woman said, jokingly.

I was disappointed that there weren't any seats left, but it was exhilarating to see so much enthusiasm for a panel discussion on economics at eight o'clock on a Friday night.

You can watch online here. Last I checked, about 300 people were watching the live stream at home.

Homeowner Helper: Obama plan would let bankruptcy judges modify mortgages

Obama's proposed anti-foreclosure has a new twist: letting bankruptcy judges reduce mortgages to the present value of the home.

My colleague, TMC Economy blogger Zach Carter explains, "Obama is supporting a bill in Congress that would enable bankruptcy judges to reduce the amount a borrower owes to the present value of the home. The beauty here is that investors who own the mortgage securities, not taxpayers, will have to eat the losses. In short, investors will be held responsible for making a poor investment."

For more information, see Mike Lillis' excellent backgrounder on Obama's housing plan.

IRS may go easier on laid-off workers

A sign of the times: The IRS is offering to be a little more lenient towards people who can't pay their back taxes because they no longer have jobs, or equity in their homes. [SFChron]

Bailed out banks: Screw you

The ostensible purpose of the bank bailout was to enable banks to start lending again, but the banks are taking taxpayers' money and thumbing their noses at the politicians who gave it to them:

At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

“Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.” [NYT]

What are bankers doing with out money instead of lending it to people and businesses to keep the economy going?

Most of the banks that received the money are far smaller than behemoths like Citigroup or Bank of America. A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future. [NYT]

It's absolutely ridiculous that banks aren't required to make more loans as a condition of accepting bailout money.

Madoff "victims" may have unwittingly profited from Ponzi scheme

Some of the investors who lost money when Bernie Madoff' $50 billion Ponzi scheme imploded may still have turned a profit after all. Investors who withdrew money from their accounts may have taken out more money than they originally invested, even they lost whatever was left in their accounts when the scheme finally went bust:

What they thought were profits was likely money stolen from other clients in what prosecutors are calling the largest Ponzi scheme in history. Now, they are confronting the possibility they may have to pay some of it back.

The issue came to the forefront this week as about 8,000 former Madoff clients began to receive letters inviting them to apply for up to $500,000 in aid from the Securities Investor Protection Corp.

Lawyers for investors have been warning clients to do some tough math before they apply for any funds set aside for the victims, and figure out whether they were a winner or loser in the scheme. [AP]

Madoff investors who made a profit face an ethical quandry. It appears that the "returns" on their investment were not ROI, but rather, the proceeds of a Ponzi scheme. Investigators believe that Madoff didn't invest the money, but rather that he he paid old investors out of the money that he collected from new clients. Madoff's  scheme was a giant financial chain letter.

This situation raises interesting ethical questions. One man quoted in the AP story came out ahead, even though Madoff held on to the final $1 million in his account. Should this guy be eligible for compensation under the new program that's being set up to help Madoff's victims? After all, he already profited from a crime by accepting money that Maddoff stole from his other clients. Yet, he did lose a million dollars through no fault of his own.

Here's a legal question for you guys. Is there any way that the authorities could come after Madoff "investors" in an attempt to retrieve the money? After all, these profits were the proceeds of a crime.

Paul Krugman wins Nobel Prize in economics

Economist and pundit Paul Krugman wins the Nobel Prize for economics.

What are the alternatives to a bailout?

I'm troubled by the instant bipartisan consensus that the the government must bail out the investment banks. It reminds me of the run-up to the Iraq war when every discussion was framed in terms what should be allowed to happen before we invaded, not whether overthrowing Saddam Hussein could solve anything.

Remember that the Democrats are just as beholden to the financial services sector as the Republicans. It's not coincidental that the options on the table all involve bailing out these companies. At this point, the Democrats are arguing for a bailout, plus executive pay controls, mortgage-related bankruptcy reforms, and maybe an economic stimulus package.

My question is this: What if the government were to take the $700 billion to $1.5 trillion set aside for the bailout and put that money into programs to help those hardest-hit by the meltdown and Americans in general.

For example, progressives often note that pension plans would be decimated without a bailout. If that's the worry, why not invest in retirement security for our people directly? An extra $700 billion in the Social Security trust fund would cushion a lot of retirements.

These are our tax dollars. We can either invest them for our future, or we can buy a lot of worthless paper to bail out reckless banks. Ultimately, bailouts just set us up for more crises by proving, once again, that the government will cover the losses of big business.

Maybe a bailout is necessary, but I troubled that no one seems to be articulating the case explicitly or considering alternative options.

Update: David Johnston has more good questions for journalists to ask about the bailout.

Debt peonage as a business model

Lenders are embracing debt peonage as a business model, the New York Times reports:

Lenders have found new ways to squeeze more profit from borrowers. Though prevailing interest rates have fallen to the low single digits in recent years, for example, the rates that credit card issuers routinely charge even borrowers with good credit records have risen, to 19.1 percent last year from 17.7 percent in 2005 — a difference that adds billions of dollars in interest charges annually to credit card bills.

Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards.

Mortgage lenders similarly added or raised fees associated with borrowing to buy a home — like $75 e-mail charges, $100 document preparation costs and $70 courier fees — bringing the average to $700 a mortgage, according to the Department of Housing and Urban Development. These “junk fees” have risen 50 percent in recent years, said Michael A. Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on mortgages.

“Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset,” said Julie L. Williams, chief counsel of the Comptroller of the Currency, in a March 2005 speech that received little notice at the time. [NYT]

The myth is that lenders want borrowers who are well-prepared to pay back their loans. In fact, lenders are increasingly targeting borrowers based on their inability to repay their debts, as opposed to their true credit worthiness. These companies use sophisticated marketing techniques to lure people into debt and keep them there permanently.

Credit card industry groups exerted massive political pressure to support the Bankruptcy Bill. Their goal was to make credit card debt permanent by insulating themselves from the natural market consequences of lending money to people who can't pay it back.

Update: Germane post by Ta-Nehisi on conservatives and the culture of debt.

John McCain and "Foreclosure Phil" Gramm

David Corn has more on John McCain's "economic brain," the lobbyist and deregulation crusader Sen. Phil Gramm.

As a senator, Gramm reshaped finance law at the behest of Enron:

It didn't quite work out that way. For starters, the legislation contained a provision—lobbied for by Enron, a generous contributor to Gramm—that exempted energy trading from regulatory oversight, allowing Enron to run rampant, wreck the California electricity market, and cost consumers billions before it collapsed. (For Gramm, Enron was a family affair. Eight years earlier, his wife, Wendy Gramm, as cftc chairwoman, had pushed through a rule excluding Enron's energy futures contracts from government oversight. Wendy later joined the Houston-based company's board, and in the following years her Enron salary and stock income brought between $915,000 and $1.8 million into the Gramm household.) [MotherJones]

Gramm also rewrote the law to allow the big banks to conduct trillions upon trillions of dollars worth of credit default swaps without federal oversight:

But the Enron loophole was small potatoes compared to the devastation that unregulated swaps would unleash. Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. It's like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm's bill—which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers—a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed. [MotherJones]

The ensuing speculative free-for-all ushered in the subprime mortgage crisis.

Gramm is one of John McCain's closest advisers. Until April 18, Gramm was a registered lobbyist for the Swiss bank UBS--one of the major players in the subprime fiasco.

Corn notes that UBS recently wrote down $37 billion in debts because of the mortgage crisis.

There's speculation that Gramm's shortlisted to be Secretary of the Treasury if McCain becomes president. What a maverick!