Business & Media Institute
Friday, Sept 12, 2008
The fragility of the U.S. banking system puts the country in a more dire position than many people realize according to CNBC “Mad Money” host Jim Cramer.
Cramer, in his September 11 “Stop Trading” segment on CNBC’s “Street Signs” told host Erin Burnett the situation puts the United States in danger of “Great Depression, No. 2.”
Burnett questioned Cramer’s assertion that banks should be bailed out by the federal government, in turn passing the cost off to the taxpayer. “It’s obvious the bank system is falling apart,” Cramer said. “Let’s save it before it goes to zero.”
Here is the blow by blow:
BURNETT: But, what I’m writing down is some numbers here – more broadly for the state of, of, of bailouts. You had the Bear [Stearns] bailout and they guaranteed the first $30 billion. We don’t know what the costs will be. Fannie and Freddie – numbers are all over the map, no one knows – $50 billion to $500 billion.
CRAMER: We don’t want a Great Depression, what’s the matter with that? We don’t want a Great Depression.
BURNETT: But OK, then you look at a Washington Mutual, you have a few hundred billion dollars in assets here. You got all these deposits. You’ve got to go borrow the money …
CRAMER: That was run by morons.
BURNETT: But my point is – you’ve got to go borrow the money to fulfill your FDIC insurance to $100,000.
CRAMER: Well, no, you just transfer – you close it one day, like my bank was…. I was banking at Crossland. The next day it opens as another bank, what do I care? My $100,000 was insured.
BURNETT: But, you care because taxpayers are the ones who’s going to be the paying you back for the ones who borrowed it.
Cramer argued it was necessary because otherwise, the U.S. would go into a depression:
CRAMER: We don’t want a Great Depression. I mean, we just don’t want one.
BURNETT: But, are we really at risk of a Great Depression? Most people would argue that we’re not in a full-blown recession.
CRAMER: Totally, totally. John Stumpf [president] from Wells Fargo said it was the worst since the Great Depression.
BURNETT: In housing, but that’s not everywhere.
CRAMER: If I wanted clean hands, if I wanted to be Andrew Mellon, I would call for – I would just say, “Listen, let’s just let the Great Depression, Number Two, happen. But, that’s where we are. That’s, we’ve been like that for a while. So, let’s try to avoid it if we can.
Burnett argued the economy was still growing. After one quarter of negative gross domestic product (GDP) at the end of 2007, the economy has rebounded with two positive quarters. But Cramer said there was a difference between the economy and the banking system.
“Well, one is the difference between the economy and the banking system,” Cramer said. “The economy really picked up in 1936 to ’38 because of armament orders, and World War II turned around the U.S. economy entirely, but there was still, the banking system was still very frail throughout the ’30s.”
Cramer told Burnett he was disappointed in Federal Reserve Chairman Ben Bernanke, who has studied the Great Depression. Cramer added there is a need for another interest rate cut at the upcoming Federal Reserve Board meeting on September 16.
“But you know, look – I hear you on the jobs, I hear you on the economy,” Cramer said. “I don’t really care. I’m talking about a dysfunctional banking system. We don’t want Citi (NYSE:C) to go out of business. We don’t want AIG (NYSE:AIG) to go out of business.”
House Speaker Nancy Pelosi, D-Calif., September 11 mentioned the possibility of another rescue package – this one for beleaguered investment bank Lehman Brothers (NYSE:LEH), based on its impact on the credit markets.
Great Depression references have been used liberally by the media in 2008. Networks have made endless connections to the Great Depression – more than 70 times in the first six months of the year and that’s just on the three broadcast networks..