CNBC’s Cramer kept telling us in 2008 that Bear Stearns was not in trouble – oops! Last Friday he said if Brown won the Kennedy People’s Seat, stocks would soar – oops! Buy on rumor, sell on news? Or maybe news does not move the market beyond Cramer-fed blip? I just wonder when the ever-entertaining and often-wrong Cramer will finally have his Monica Moment, the blunder that dogs him like a cheap cigar for the rest of his career.
Obama is nearing his Monica Moment. The political tectonic plates are shifting this morning. Warren Buffett threw Obama under the bus by trashing his bank tax proposals. Congress may balk at Obama’s morning proposal to nationalize the student loan program, after effectively assuming huge mortgage liability by backing Fannie/Freddie to the hilt last month. It is no longer clear if any of Obama’s agenda can be passed, especially those which lead to further socialization of risk.
While Obama continues to blame deregulation for the current credit mess, a simper explanation is that we privatized the upside and socialized the downside of the shadow banking system, the same mistake we made in the ’80s with S&L’s, just at much huger scale. Pushing high-risk loans and backing them with Fannie/Freddie implicit government guarantees led to a classic example of Moral Risk in mortgages.
Finally we begin to see financial leadership pushing back on continuing this foolishness, starting with the former Obama supporter, Warren Buffett. This tectonic sea change will ratchet through investment thinking over the next few months.