As part of their book, The Communist Manifesto, Karl Marx and Freidrich Engels implored the “workers of the word to unite.” Of communism, the great Wilhelm Röpke presciently predicted in the 1950s – when communism was still in its ascendency - “…so we have gained this supreme certainty: whatever disasters Communism may still inflict on the word, not least because of our own weakness, it will go the way of all godless effrontery. It will tremble before the rebellion of those who fight for freedom and human dignity…”
Communism’s inherent conflict with human dignity made Röpke confident of its ultimate demise. However, it is not as easy to be as optimistic about the collapse of another economic system that shares communisms deep conflict with human dignity – the central bank subsidized corporate cronyism that dominates the world today. For anyone who seriously doubts the stranglehold this type of cronyism has on the United States and its economy, let Jim Cramer disabuse you of this naiveté. Here is Cramer’s “crony capitalists of the world unite” speech from August 2007. In this speech Cramer castigates Ben Bernanke for not providing the overleveraged gamblers at Bear Stearns and elsewhere a financial pacifier to suck on;
“This is about Bernanke. This is about Bernanke. He has to be on that (Bear Stearns) call. Forget the investors. The investors are going to…Bernanke needs to open the discount window. That is how bad things are out there. Bernanke needs to focus on this. Alan Greenspan told everyone to take a teaser rate and then raised the rate seventeen times. And Bernanke is being an academic. It is not time to be an academic. It is time to get on the Bear Stearns call. Listen. Open the darn Fed window! He has no idea how bad it is out there! He has no idea! He has no idea (screaming)!”
Cramer was then out of breath – and the United States was able to enjoy a precious few seconds of peace and quiet free of his rants and ravings. However, after CNBC’s Erin Burnett, resplendent in some sort of leopard skin top, futilely tried to interject Cramer regained his bearings and his steam.
“I have talked to the heads of almost every single one of these firms in the last 72-hours and he has no idea what it is like out there. None (screaming)! And Bill Poole has no idea what it is like out there. My people have been in the game for 25-years and they are losing their jobs and these firms are gonna’ go out of business, and he is nuts! They are nuts (slapping table)! Nuts! They know nothing (red-faced screaming)! I have not seen it like this since I went 5-bid for a half-a-million shares of Citigroup but I got hit in 1990. This is a different kind of market! And the Fed is asleep (spitting on the ‘p’)! Bill Poole is a shame! He is shameful!”
Over the years all sorts of industrial companies went bankrupt or suffered massive losses – including former blue chips like Bethlehem Steel – and industrial behemoths like International Harvester respectively. Some idea of the scale of the operations of just these two companies can be obtained by recognizing that at one time – 1960 – both companies employed over 100,000 workers. In 1960 Bethlehem Steel was the ninth largest employer in the US and International Harvester was the fifteenth largest. The failure of Bethlehem Steel and the massive job losses suffered by International Harvester were attributed to their inability to compete and adapt to the competitive landscape. When these companies failed, there were no calls for the Fed to make whole the many mistakes these companies, their management and workers had made over the years – nor should there have been.
Jim Cramer has two degrees from Harvard – neither of which would appear to have anything to do with even the most basic aspects of real economics. According to Cramer’s crony capitalist version of economics, banks like Bear Stearns should enjoy the unique privilege of constant and ready access to cheap money from a central bank – regardless of how grotesquely stupid and overleveraged their positions are. Some evidence of the abject stupidity of Bear Stearns circa August 2007 can be gleaned by recognizing that in April 2007 – when the housing crisis was already increasing in intensity - Bear Stearns tried to purchase mortgage credit default swaps from Morgan Stanley. These credit default swaps would ultimately cost Morgan Stanley billions in losses. In other words, Bear Stearns wanted to pay Morgan Stanley tens of millions of dollars for “assets” that would give Bear Stearns the unique privilege of losing billions. (Fortunately for Bear Stearns, Zoe Cruz (#15), an executive with Morgan Stanley – who, like Jim Cramer, has two Harvard degrees of her own - refused to sell.) In a mortgage market full of morons, Bear Stearns was basically the dumbest – and Jim Cramer wanted the Fed to come to their rescue.
According to the crony capitalism of Jim Cramer – which amounts to little more than the Fed subsidizing the largest Wall Street banks - when times are good, profits should be handed out to the courageous lion hunters on Wall Street in the form of tens of billions of dollars in annual bonus payments Wall Street is famous for. However, when times get tough, and as soon as banks are threatened with losses or bankers with the unemployment line, “the darn Fed window” should be hurled open. The US economy can withstand – and has withstood - huge companies employing tens of thousands of people in real wealth producing activities going bankrupt. However, the prospect of some 27-year old Wall Street investment banker who contributes nothing to the production of real wealth in the United States having to sell his or her Ferrari, yacht or - worst of all – give up their year-end bonus is too much stress for the American economy to take. It is a version of economics that is every bit as inimical to simple human decency as communism ever was.
See Zoe Cruz (#15) for more information on Bear Stearns’ unsuccessfully attempt to take on even more mortgage risk. See Steve Liesman (#33) for more information on the critical role CNBC played in the emergence of both the tech and housing bubbles as propagandist and stooge for the Federal Reserve.