Filed under: Forecasts, General Electric (GE), Goldman Sachs Group (GS), Economic data
The New York Times [registration required] suggests that General Electric Company’s (NYSE: GE) CNBC’s Jim Cramer has had little effect on Fed Chair Ben Bernanke — this despite his famous video rant in favor of cutting interest rates.
Cramer is used to having tantrums and getting his way. But his responsibility is limited to providing a unique mix of entertainment and stock touting. Bernanke, on the other hand, has a slightly bigger responsibility — managing the first global financial panic of his 18-month tenure. To do that, he spent $62 billion of the government’s money buying back mortgage backed securities (MBSs) in an effort to restore confidence to the markets.
Meanwhile Cramer is trying to get Bernanke to bail out his buddies at The Goldman Sachs Group (NYSE: GS), whose formerly eight-figure-bonus-worthy trades are now blowing up in their faces. Simply put, Cramer wants the Fed to grant Wall Street all the upside while shifting the costs of its mistakes onto society. But Bernanke does not want to play along.
I agree with Bernanke’s even-handed approach. He is keeping interest rates where they are because inflation is above the 1% to 2% level that the Fed has targeted. And he is adding liquidity in an effort to restore confidence.
But I think there’s more the government needs to do — it has to give the global markets accurate information about who owns the alphabet soup of securities — such as MBSs, Collateralized Debt Obligations (CDOs), and Collateralized Loan Obligations (CLOs); who has lent money to those securities owners; and how big the gap is between the true market value of the securities and the amount of debt their owners need to repay.
This information is important because it will enable market participants to anticipate how much selling of more liquid assets — such as stocks — might be required to pay off the banks. And if there are not enough liquid securities to raise the cash the banks need, it will enable investors to estimate how much capital the banks will lose as they write off their bad loans.
Absent that information — which is admittedly a very tall order in a world where capital flows into countries with different regulatory regimes than those in the U.S. — investors have plenty of reason to be jittery. In the meantime, I would be even more uncomfortable if Bernanke decided to give in to Cramer’s tantrum.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns GE and has no financial interest in Goldman Sachs.
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