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View Full Version : OT: Interesting Jon Stewart, Jim Cramer interaction?


eddief
03-13-2009, 11:32 PM
I know it's just stuff on the idiot box, but this time there was only one idiot. That big mouth Cramer would even get in the ring with Stewart was kinda weird. Stewart hammered him like you almost never see in the media.

"It was an astounding half-hour, featuring more trenchant talk of the financial crisis and the responsibility of the networks than you’d find on any news channel, all the more surprising in that it aired on Comedy Central. It demonstrated once again why so many rely on Stewart for their news. Cramer deserves credit simply for showing up. The "Mad Money" host pledged to do a better job; Stewart promised if he would, then he would go back to making funny faces and fart jokes."

http://blog.indecisionforever.com/2009/03/13/jon-stewart-and-jim-cramer-the-extended-daily-show-interview/

eddief
03-13-2009, 11:41 PM
thanks

ButtedMoron
03-13-2009, 11:58 PM
of America when the best newsman working is a comedian
was the best 1/2 hour of TV in a long time

bironi
03-14-2009, 12:08 AM
Look at Comedy Central's web page for the unedited video of the interview. The show did a good job with the edited version, but had to leave out some equally good footage. I'm curious how MSNBC will respond. I'm not expecting the station to make apologies, but it would be just if there ratings plummeted. Jim Cramer should have been fired when the system failed. He should not be doing commentary on any main stream media.

Nil Else
03-14-2009, 12:09 AM
Jim Cramer appeared on Martha Stewart's show later. When they were rolling out some doughs she told him he should try to think of the dough as Jon Stewart and pound it out harder with the rolling pin and Cramer obliged wholehearted. The whole thing cracked me up but seriously... Although over the top.. I'm with Jon Stewart. CNBC, Cramer and anyone else who gives out advises and tips publicly ought to reconsider their arrogance and perhaps use some doses of humility.

johnnymossville
03-14-2009, 12:15 AM
Finally I saw some good coming out of the fawning adulation of our president. I doubt Stewart would have raked Cramer, a fellow dem, over the coals if Cramer hadn't come out against The One's policies the other day.

Anyway, way to Go Stewart!

JohnHemlock
03-14-2009, 12:20 AM
John Stewart is like Lou Dobbs for the college set. Just a snotty showman who desperately wants his fake news to be taken seriously.

eddief
03-14-2009, 08:28 AM
don't you think Stewart has more balls and does it better than Dobbs?

39cross
03-14-2009, 08:34 AM
I like John Stewart's show but taking on Cramer was like stealing candy from a baby, shooting fish in a barrel, what have you. That horse is already out of the barn. On the one hand he's telling the truth on the telly like no one else, but we already know Cramer is to finance like Stewart is to news...if Stewart had run this 6-9 months ago it would mean more. IMHO.

CNY rider
03-14-2009, 08:42 AM
I have to admit I am surprised to hear that people thought of CNBC as anything but entertainment.
It's just another semi-reality, infotainment channel with a focus on the markets.
You want actual news that you can use to trade, invest, or otherwise make money with? Watch Bloomberg TV.
Want to be entertained with a market focus? Watch CNBC.

Smiley
03-14-2009, 09:55 AM
Cramer is a Blow Hard, shows that any idiot can make it on TV. John exposed him for what he is, a fool and too bad people may take his advise.

97CSI
03-14-2009, 10:07 AM
Cramer is a Blow Hard, shows that any idiot can make it on TV. John exposed him for what he is, a fool and too bad people may take his advise.Taking the advice of Cramer and any other media 'pundit' on any subject is liking taking the advice of your broker (or money manager for those stupid enough to have one)..........you get what you deserve. After all, who owns and runs the media other than big-business and the rich (no one, of course).

Ray
03-14-2009, 10:18 AM
Taking the advice of Cramer and any other media 'pundit' on any subject is liking taking the advice of your broker (or money manager for those stupid enough to have one)..........you get what you deserve. After all, who owns and runs the media other than big-business and the rich (no one, of course).
I agree with the part about Cramer, but you put a money manager in the same category? I thank my good fortune every day for the money manager I've known and used since I was a young man. I'm in good financial shape because of him. I wouldn't be anywhere CLOSE to where I am if I'd been trying to make all of those decisions on my own. I'm sure money managers are like anyone - there are good ones and bad ones. But a good one is worth his or her weight in gold. Probably more, literally.

-Ray

OtayBW
03-14-2009, 10:46 AM
don't you think Stewart has more balls and does it better than Dobbs?
Martha or Jon?

eddief
03-14-2009, 11:49 AM
but now that you add Mr Martha to the equation it might be difficult to decide. She's been to prison and even though you might not have entered with balls, never can tell what you'll come out with.

OtayBW
03-14-2009, 12:09 PM
but now that you add Mr Martha to the equation it might be difficult to decide. She's been to prison and even though you might not have entered with balls, never can tell what you'll come out with.
It was a rhetorical question. I'll just say that I think that 2 of the 3 choices are douchebags.....

BengeBoy
03-14-2009, 12:22 PM
I agree with the comment above that it would have been a more noteworthy interview 6 to 9 months ago. However, the whole chain of events was set off by the CNBC rant calling homeowners "losers", which led to a lot of fawning media coverage about how great it was that somebody showed some passion on TV about the economy. But it was Stewart who saw through the phony populist rant and took CNBC to task for being the cheerleader of the financial system while it was crumbling around us.

I've watched the video of Cramer vs. Stewart 3 times now - it's a very, very tough interview. He didn't ask "trick" questions, which interviewers do when they are trying to trip somebody up -- he asked tough question.

Wish there was more of this on TV.

97CSI
03-14-2009, 12:39 PM
I agree with the part about Cramer, but you put a money manager in the same category? I thank my good fortune every day for the money manager I've known and used since I was a young man. I'm in good financial shape because of him. I wouldn't be anywhere CLOSE to where I am if I'd been trying to make all of those decisions on my own. I'm sure money managers are like anyone - there are good ones and bad ones. But a good one is worth his or her weight in gold. Probably more, literally. -RayYou have a most unusual money manager. Does he also share in any loses you may have? Or does that just reduce his take a bit?

CNY rider
03-14-2009, 01:21 PM
I don't know why but I feel the need to stick up for Cramer here.

Calling him an idiot is a completely unfair characterization of the man.
He was one of the most succesful hedge fund managers in history. Made obscene amounts of money for himself and his partners. I still read his articles on a daily basis on Real Money dot com and have done so for years, since the site first started. He is no fool and has incredible insight into markets and ways to make money in them.

Unfortunately, I think what happened is he jumped the shark when confronted with a daily TV show and the need to make calls and recommendations 5 days a week. He's out there trying to generate daily excitement to garner viewers when the reality is that 1. Most days in the stock market are irrelevant and boring and 2. Truly great trading and investing ideas DO NOT happen on a daily basis.

He's become another manifestation of "Breathless Maria" down on the floor of the NYSE trying to make it all look exciting (and rational, which it's not) so as to entertain the viewership and keep them watching.

The best advice that I read on a daily basis come from Bill Fleckenstein. Bill spends a lot of time out of the market completely when he doesn't have an edge, and isn't afraid to say that a given trading day was boring and irrelevant. It's not real entertaining but it certainly has made me money. But it won't glue anyone to their TV set and that's what CNBC is all about.

Ray
03-14-2009, 02:31 PM
You have a most unusual money manager. Does he also share in any loses you may have? Or does that just reduce his take a bit?
He gets paid based on a percentage of the overall portfolio value. It goes up - he gets paid well. It goes down - he gets paid less well. Last year I lost a few percent. I was happy to pay him for having gotten a good portion of our investments out of the stock market and into cash before it all fell apart. He's outperformed the market in good years and in bad years. That's all I can ask for.

-Ray

texbike
03-14-2009, 04:32 PM
I don't know why but I feel the need to stick up for Cramer here.

Calling him an idiot is a completely unfair characterization of the man.
He was one of the most succesful hedge fund managers in history. Made obscene amounts of money for himself and his partners. I still read his articles on a daily basis on Real Money dot com and have done so for years, since the site first started. He is no fool and has incredible insight into markets and ways to make money in them.


This is EXACTLY the point that Stewart was making in the interview. Cramer KNEW better! Perhaps as much as or more than anyone else. Stewart pretty much summed it up in the interview when he stated that Cramer/CNBC pretending to not know what was going on was disingenuous at best and criminal at worst. I agree!

To CLAIM that he didn't know what was going on and didn't see it coming is ridiculous given Cramer's background and technical knowledge of the markets. To me it reeks of complicity.

To be honest, I've liked Cramer and have been a fan of his articles on the technicals of hedging but never paid attention to his show due to work and family schedules.

However, after this showing, I hope that the justice department is paying attention and does something about him AND CNBC.

Texbike

CNY rider
03-14-2009, 06:46 PM
This is EXACTLY the point that Stewart was making in the interview. Cramer KNEW better! Perhaps as much as or more than anyone else. Stewart pretty much summed it up in the interview when he stated that Cramer/CNBC pretending to not know what was going on was disingenuous at best and criminal at worst. I agree!

To CLAIM that he didn't know what was going on and didn't see it coming is ridiculous given Cramer's background and technical knowledge of the markets. To me it reeks of complicity.

To be honest, I've liked Cramer and have been a fan of his articles on the technicals of hedging but never paid attention to his show due to work and family schedules.

However, after this showing, I hope that the justice department is paying attention and does something about him AND CNBC.

Texbike

OK, I hear ya.
I really don't watch Cramer's CNBC show and I don't have good enough Internet service to watch the Daily Show interview online. If that's what JS hammered him about then it's fair game.
People need to remember though that Cramer may act like a buffoon on TV but he definitely is no idiot.
And everyone is responsible for their own actions when it comes to investing. Cramer might give you an idea but it's up to you to do your homework on whether that investment is right for you.

1centaur
03-14-2009, 09:45 PM
This is EXACTLY the point that Stewart was making in the interview. Cramer KNEW better! Perhaps as much as or more than anyone else. Stewart pretty much summed it up in the interview when he stated that Cramer/CNBC pretending to not know what was going on was disingenuous at best and criminal at worst. I agree!

To CLAIM that he didn't know what was going on and didn't see it coming is ridiculous given Cramer's background and technical knowledge of the markets. To me it reeks of complicity.
Texbike

No. Stewart's accusation was completely, profoundly ignorant. The vast majority of the participants in the market did not understand what was happening or going to happen. Some very smart investors did and made a lot of money. If CNBC reporters, no one's pick for rocket scientists, had known what was going on, then MOST people in the market would have known what was going on, because CNBC reporters only know what most people in the market know. That most people in the market did not know, most professionals that is, is evident from the way the market was surprised by events; professional money dominates the market, not retail money, so how come professionals did not know but CNBC knew? And if CNBC knew, why not the Wall Street Journal? Aren't they even more knowledgable than CNBC reporters? Bloomberg? Investor's Business Daily? Barron's. Heck, the NYT has a fairly plugged in business section.

There's an implication from Stewart that wise guys know everything and the fix is in, and that is simply crap, like most conspiracy theories. It can be disabused by logic. Stewart does not have that, he has emotion that clouds his rationality. Stewart was working from a false predicate, which undermined everything he said. He won through his style, not through his intellect, if you can call it that.

eddief
03-14-2009, 10:38 PM
while to some degree, Stewart may have done a bit of an ambush...and did it backed by emotion, don't ya think it appeared Cramer was completely caught with his pants down? Like someone nearly completely guilty of that about which he was accused?

Climb01742
03-15-2009, 06:59 AM
No. Stewart's accusation was completely, profoundly ignorant. The vast majority of the participants in the market did not understand what was happening or going to happen. Some very smart investors did and made a lot of money.

1centaur, this is where we draw different conclusions.

i don't think wall street is full of evil people, nor is it a vast conspiracy. but...

when you got from 12-to-1 leveraging to 30-to-1...

when you use financial instruments that few if anyone really understands...

when you securitize sub-prime mortgages rated as triples A...

when bonuses are paid on 12 month performances that encourage very short term thinking and cooking of the books (see ML last nov and dec)...

most reasonable people would sense that this can't end well. there is reasonable, prudent risk...then there is this kind of reckless, i'm playing with somebody else's money risk. it's part of why wall street firms going from private partnerships to publicly traded companies has changed the culture.

also there's a difference between the profit motive and greed.

i saw a major player pretty close up for seven years. while many of the folks involved were extremely decent hard-working people, a few at the top were driven by one thing: goldman sachs envy. they wanted goldman sized profits. problem was, they didn't have goldman size talent or expertise, yet they made huge bets in hugely risky markets and instruments that they simply didn't understand. but they were caught up in wanting to have the biggest financial d!ck on the table. and they cratered one of the greatest firms and billions upon billions of dollars all based on goldman envy and placing bets they really didn't understand. and oh yeah, walked away with north of $100m afterwards.

if, as you say, these folks didn't understand what would happen, why didn't they play it safer?

one reason why i think there is such outrage at wall street is this: clearly bad things happened. wall street could say one of two things: no one could have seen this coming. or, we made some mistakes. perhaps for legal reasons they can't cop to #2. but by sticking to #1, and trying to skate past responsibility for whatever part of the culpability they_rightly_bare, the public is inclined to heap all the culpability on them.

finally, as business owners, my partners and i weigh risk on an almost daily basis, particularly in this economy. how much rent is prudent? how much staffing is prudent? how much can we spend chasing new business? how much can we pay people, what raises are prudent? what equipment purchases are wise? how much working capital should the business have? when do we stand up to a client and when do we not? risk is a part of EVERY business. taking over-leveraged risks, or stupid risks, isn't. if we take imprudent risks and go belly up, i'd hold myself responsible for the employees' salaries and mortgages and tuition payments i/we cratered. my partners and i live with this risk/reward equation every freakin' day. and a million other businesses in america do too.

why should wall street be held to a different standard?

ps: in this morning's nytimes, it's reported that AIG is paying $165m in bonuses to the business unit that cratered the firm. AIG's rationale, as stated by its CEO..."We cannot attract and retain the best and brightest talent to lead and staff AIG businesses..." clearly, they haven't got the best and brightest. can you see how this behavior by financial firms drives regular folks bat*****? what other business or industry would reward failure this way?

39cross
03-15-2009, 09:51 AM
well put climb...when you change the rules of the game to basically give yourself a free ticket to looting the public with no downside or accountability for your recklessness...people are going to be a little pissed off when the truth finally comes out. Cramer as shill for the big boys is also going to piss off people. Stewart tapped into that big time.

Ray
03-15-2009, 11:00 AM
OK, I'm willing to buy 1Centaur's contention that there was no "fix" in, that the big players didn't want to see this monumental collapse, and that CNBC and the others in the financial press weren't in cahoots in any direct sense. This outcome was not in anyone's interest. But I also agree with Climb's fundamental point that the big players who were heavily leveraged knew damn well that the sun was looking really big, that their wings were getting real real warm and were starting to drip wax, and knew they were gonna come down either gradually or fast. I have to assume that it was merely hubris that caused each of the big firms to imagine they THEY would know when to get out better than anyone else but just not quite yet because we're still going up and we don't want to stop the party and make everyone go home just yet. Soon, though. Really. We mean it. Soon. Last call. OK, maybe one more after that, but then its time to sober up.

And, of course, they ended up waaaaay too close to the sun, the wax melted very quickly, and there was a huge and rapid drop. They blew it and it was pretty dramatic and crazy. It was gonna happen one way or another and it was a drag it happened like that because a lot more people on the ground got hurt by the impact.

So what is the role of the financial press in a situation like this? I'm willing to accept that most of the folks at CNBC and Bloomburg and elsewhere are also damn smart. That they didn't know that the markets were all gonna collapse immediately. But they must have known, just like many on Wall Street did that the current practices and market levels were not sustainable and, for damn sure, that it was no time to buy. Did they report that? Or did they continue to cheerlead and convince more and more people to keep on buying and driving up just that last little bit higher? This is a question. I don't know what they did. I don't generally watch them. But I get the impression that they played more of a cheerleader role than a journalistic one. Cramer, at least, seemed to be copping to that.

1Centaur and CNY are right that nobody should rely on the advice of CNBC in making their own investing decisions and, if you do, you get what you pay for. But I don't buy 1Centaur's contention that CNBC is under no obligation to be journalists. They portray themselves that way. They invite people to trust them and take their stock picks seriously. And they report financial and market "news" all the time. Do they not have an obligation to dig a little bit deeper than what their interview subjects want to put out there? If not, I think they should run a pretty serious disclaimer at the beginning of each show, stating that the show is "for entertainment purposes only - any resemblance to actual journalism or news is purely coincidental".

I think looking for scapegoats in this mess is pretty useless. As Mick and Keith reminded us 40 frickin years ago, "we shouted out 'who killed the Kennedys', when after all, it was you and me". We were all in this together and we're gonna all have to pull out of it together. But understanding the misbehavior of ALL of the players involved, you and me included, is pretty important I think.

-Ray

1centaur
03-15-2009, 11:24 AM
climb, the first issue at hand is Stewart vs. CNBC, not Wall Street. It was Stewart's push against reporters that is deeply flawed, and that was the majority of it. I understand the anger, but it is misplaced and illogical to place that anger against a reporting entity that exists to hit the highlights of the day, not to uncover the consequences of subprime structured product on the rest of the world in a huge leverage unwind; that multi-moves-ahead pattern is what the best hedge fund minds figured out and why Cramer said it was unfair to lay that at CNBC's feet - most of the professional market had no idea because they were looking at different stuff. Put Stewart in the hot seat and pound him on what CNBC knew and when they knew it and you would find, in a short period, that he did not have a leg to stand on. A therefore B therefore C would break down. Thus his accusations were completely and profoundly ignorant, and therefore his browbeating attack of Cramer repugnant.

To change the topic completely, to Wall Street's blame, there are two major issues: high leverage, and products. The issue of high leverage actually interacts with products. A bank with 12-1 leverage (prudently capitalized by US standards and much more so by historic Euro standards) is only prudent to the extent that its products are well understood, for real, like well made home mortgages and corporate loans - good old fashioned banking. Increase the leverage and increase the complexity of the products, when complexity inherently means less well understood, as does newness, and the question of risk gets fuzzy. The regulators and the investment banks, particularly, used the output of risk management quant jocks to measure the potential risk, especially using a term called VAR, or value at risk. I have long thought that approach was flawed and that risk management functions were an exercise in modeling unknowns in less than satisfactory ways. I did not think multi-moves ahead to perceive that when (not if) they got it wrong the whole system would be at risk. I did tell colleagues years ago that VAR, derivatives, and market participants who used only market prices to make their investment decisions were relying on a very small base of old fashioned investors to do the real fundamental work. I did warn clients two years ago that we would someday go through the first unwind in derivatives the world has ever seen and it would therefore be the scariest the world has seen, leading to great investment opportunities - I did not guess how great.

If I, 1centaur, with my personality and attitude towards risk, had been CEO of an investment bank or a commercial bank trying to be an ibank, I would have pushed long and hard enough on the people involved with structured products to find out how much housing prices had to decline to blow up those structures. I might then have gone on to figure out what the consequences of those structures blowing up would be on some other structures. It would not have taken too many steps along that road to scare me, and I would have de-risked (a modern term) my bank, told the world why, and probably been punished in the market for being such a worrier. With my attitude towards risk, I would never have been in that position in the first place.

Should the CEOs have understood their real risk position better than they did, or perhaps they did and did not do anything about it? Yes, one or the other I think, and that will be a focus of many in the months to come. Should the risk management teams have understood the real risk better or perhaps they did and did not push it? That too is fair game. Should regulators have understood the risk better, given that they were uniquely in the position of understanding systemic risk, not just firm risk? Yes. Should those who professionally invested in banks and ibanks have understood the balance sheet risk better and called on CEOs to cut it back? Probably yes, though disclosure from banks has always been poor for competitive reasons - banks are black boxes to the outside, which is one reason I usually have not invested in them.

As to the % of Wall Street who should have known about all this, I continue to say that number is low. The buy side was putting together portfolios and investing - they are looking at hundreds or thousands of companies at a time. Zeroing in on that one undisclosed aspect of a bank's balance sheet is not something many would do ever, and those that would would most likely look at decades of it not being a problem and move on. On the sell side there are brokers (know nothing, just sell), traders (just look at supply and demand in front of their face), M&A advisors (focus on relationships and what story might look best with another), underwriters (putting bank capital at risk until something can be sold to take bank capital off the table) and product creators (trying to create products that the firm's brokers and traders can sell and trade). Only the last category has a shot at understanding their own product risk (they should have, IMO), while only their bosses should be able to put that product risk alongside capital risk to understand the real risk. That's a very small subset of actors - hundreds of people in a world of hundreds of thousands, including support staff) - who reasonably could have and should have known, in the John Stewart sense. I have worked with product structuring people, and I seen how they often focus on just a little piece of even their own small pie - that's the level of specialization I saw from Wall Street. When I worked with the underwriters of a structured product for our firm and asked them to step back and talk about the forest rather than the trees I was shocked at how little they had thought about the forest. It was the forest that was the problem with subprime structured products, and that became the domino that made all the world delever their balance sheets. I hope I am conveying why I think the focus of certain commentators and politicians is misplaced.

1centaur
03-15-2009, 11:45 AM
While I wrote my novel, Ray wrote something so I'll take a shot at that.

Let's be realistic about what journalism, TV journalism for this discussion, is today. TV news, whether it's local, or CNN, or CNBC, is about putting attractive people on the air to attract viewers to sell ads. Sometimes a reporter who was a journalism major rather than a communications major will do some in-depth work and break a big story (as the National Enquirer did with Monica Lewinsky and John Edwards while the big news organizations failed), and the public will like that and respond to it for a while, but for the most part all these entities can make their money without such effort. Would it be great if we had very bright, creative, diligent newshounds chasing down every lead and pulling threads together all the time to create the fabric of a new reality? Yes. Is it really ever going to happen, and does John Stewart who works in TV think it's going to happen? No.

Ray - be careful about the slippery slope between asking CEOs some tough questions and actually uncovering subprime>unwind>Depression. Stewart was on that same slope. CNBC fills slots with CEOs because seeing CEOs is difficult for everyone and they want to give their viewers a chance to make their own judgments. If they act like every CEO is a liar, which Stewart implied (hmmm, wonder what Comedy Central's CEO thought of that) then they won't get CEOs on their network and they will lose viewers. Same as CNN reporters getting Obama on and pounding him about his pledge on earmarks that he quickly broke, and not letting him slide away with deft word play. If they said, "Mr. president, you said one thing and did another, and now you say you won't do it again. Honestly, why should anyone believe you on this or anything else?" do you think they'd get him as a guest again in the near future, or get called on at press conferences? Every TV news organization has to walk that same tightrope. CNBC reporters most likely get some background data on a company from staffers and are expected to hit the top 3 questions the public want to know in their 2:30 time slot. It's mechanical. Cramer above all others on that network had the time and personality to hit CEOs harder, though he tended to bring on the ones he already liked and believed in so he would not be in the position of pulling them down to the detriment of his network.

What obligation does any news organization have to anyone? None (regardless of ad campaigns, the public has it's view of what a network does), but they will respond to public requests. If the public wants news organizations to hit hard all the time, they will. That may mean no guests, but that's life. If every CEO was going to be treated like Cramer was by Stewart, with constant interruptions, put downs and half-assed aspersions, I think you could count on staring at reporters rather than guests.

Here's a good question for Stewart. What % of CEOs go on TV and lie? The way he acted, you'd think he'd say 75%. I bet the real answer is 5%, since those lies could be used as the basis for litigation. Should CNBC pound the 95% truth tellers as if they are the 5%? Why not let the chips fall where they may - present the people and let everyone decide over time.

dancinkozmo
03-15-2009, 02:42 PM
w.r.t kramer : taking financial advice from a guy who yells all the time is probably not a good idea...

Ray
03-15-2009, 03:42 PM
Ray - be careful about the slippery slope between asking CEOs some tough questions and actually uncovering subprime>unwind>Depression. Stewart was on that same slope. CNBC fills slots with CEOs because seeing CEOs is difficult for everyone and they want to give their viewers a chance to make their own judgments. If they act like every CEO is a liar, which Stewart implied (hmmm, wonder what Comedy Central's CEO thought of that) then they won't get CEOs on their network and they will lose viewers. Same as CNN reporters getting Obama on and pounding him about his pledge on earmarks that he quickly broke, and not letting him slide away with deft word play. If they said, "Mr. president, you said one thing and did another, and now you say you won't do it again. Honestly, why should anyone believe you on this or anything else?" do you think they'd get him as a guest again in the near future, or get called on at press conferences?
I disagree with you about public officials getting tough questioning. I think they do most often (and should). But this point made me think harder about the differences between the way elected officials interact with the press and the way private business leaders do.

With elected officials, there is a lot of the dance you're talking about between the toughness of the questioning and the level of access granted to the press. There's a balance of power between an elected official and the press - when a politician's popularity is up, he or she has more power relative to the press and can dictate the terms of interviews more than when their popularity is down. But the bottom line is that the press and politicians both absolutely need each other and are totally dependent on each other to do their jobs. Since the politician's bottom line currency is people/votes, the only way to earn more of 'em is to get their message out as effectively as possible, and the press is the biggest and best vehicle for that by far. And if the press doesn't get any input from the politician, they have very little to report beside the details of the actual event. So politicians have to be out there and they have to subject themselves to generally very tough questioning.

The CEOs bottom line currency is not people/votes, its money, plain and simple. If they're making good products, the products speak for themselves and sell themselves and the CEOs don't have to say much of anything, big egos aside. Even if the product isn't doing well, the CEO has to make the changes to assure a better product and more sales, but still doesn't have to say much of anything outside of his or her company. So what is the incentive for a CEO to go on TV? I can't see ANY if things are going well, ego aside. If things are going badly, does it help them to make a public pitch for their stock? I don't know, but that's the only time I see the CEO actually NEEDING to be accessible to the press. Is there any other time that they have any incentive to go on the tube and subject themselves to questions? I'd guess not, or VERY VERY rarely. Which means they have all of the power relative to the reporter, who's just begging for some morsels of interview time to pump up their own ratings. As such, given the rare access, the reporter has absolutely NO incentive to ask tough questions and the CEO has absolutely no incentive to answer them in any way that wouldn't help his company.

As such, hugely different relationship between press and private sector leaders than press and public sector leaders. Hadn't really thought about it in those terms before. So, there's not much reason to watch financial news interviews with CEOs unless its just out of curiosity about what this superstar looks and sounds like. Certainly not to learn anything useful. But there's absolutely no reason to believe anything they say. They don't have any reason to say anything difficult and the reporter doesn't have any reason to ask anything difficult. I don't think this absolves financial journalists from the responsibility of being journalists and doing tough investigative work, but on-the-record interviews are not really part of their arsenal. But I think it clarifies (for me) why financial celebrities like Cramer have absolutely no incentive to ask tough questions on the rare occasion they get an interview with one of these big-wigs. So, I won't expect any more from them in the future. And will continue to not watch them. :cool:

Stewart I'll still watch because I think he's hilarious most of the time and damn insightful often enough.

-Ray

1centaur
03-15-2009, 04:26 PM
Ray, listen to me now und belleev me layduh, as Hans and Franz used to say on SNL.

In a world with thousands of equity stories, it takes PR to get attention and to define the story for investors. Merely turning out a good product does not do it. CEOs are usually compensated mostly in stock and have to answer to even bigger stockholders. If they don't get out there and tell the story of what they are trying to achieve then their stock story will be lost in the crowd and their stock price will suffer and they will be blamed for not returning value to shareholders. Does not matter what their EPS growth over 10 years is, it matters how their stock did; EPS growth is just a piece of that puzzle. This is a bit perverse and often leads CEOs to do things for the sake of appearances rather than reality; analysts are very wary of this potential. Some CEOs seem to exist to pump up the stock rather than make good company decisions - they spend weeks on the road every year visiting sell side firms, doing investor conferences, going on CNBC, visiting Fidelity in Boston, etc. just to tell people why they have a good stock story. It would be better if they had PR officials to do this stuff, but there's a cult of personality in this country and investors want to believe that the CEO's wisdom, instincts, knowledge and drive is what makes a company do well (Steve Jobs) rather than the average quality of upper management, the culture of excellence that has been developed over years, etc. That said, one of the great benefits of CEOs telling the story is that they usually try to under promise and over deliver, i.e., they give guidance that is lower than what their projections are telling them. This means that when earnings are below guidance, it's a clue that the world got a LOT worse than the CEO expected, which could be because he does not have the right data or because the world really is getting worse - either way, a reason to sell the stock. By watching and listening to what a CEO says every quarter about his business, analysts can build up a sense of who's good and who's bad. CNBC plays its part by giving CEOs a venue outside of the typical insiders' forums, and for that retail investors should be grateful. What CEOs do with their time is up to them. Most are honest business guys doing their best and telling their story, emphasizing the positive. A few are doing something worse because they are positive when they know something is negative. A few are clueless. CNBC reporters can't tell the difference because they're not analysts with long track records dealing with each company - they are more like moderators.

Other than the late, lamented Tim Russert, I rarely have heard political reporters taking more than 2 bites at any apple, and even then they do not confront politicians in an accusatory, personal way unless they happen to be on the other side politically and think they can achieve a gotcha moment.

Ray
03-15-2009, 04:43 PM
Interesting. So, they DO need the media. Which puts the media in the position of have enough leverage to be able to ask the tough questions. Which means when they don't and they know better, they damn straight SHOULD be criticized for it. IMHO, of course. Or maybe I'll belleev ya laduh. :cool:

I liked Russert too, but don't forget he was one of the main guys who didn't push hard enough on the WMD story when it was in front of him and others, with far less visibility, did. Generally, taking two or three shots at the same question is enough. Either the politician is going to answer it, or its readily apparent by then that he's not gonna answer it. Which speaks for itself and opens him or her up to plenty of criticism.

-Ray

Climb01742
03-15-2009, 05:49 PM
climb, the first issue at hand is Stewart vs. CNBC, not Wall Street. It was Stewart's push against reporters that is deeply flawed, and that was the majority of it. I understand the anger, but it is misplaced and illogical to place that anger against a reporting entity that exists to hit the highlights of the day, not to uncover the consequences of subprime structured product on the rest of the world in a huge leverage unwind; that multi-moves-ahead pattern is what the best hedge fund minds figured out and why Cramer said it was unfair to lay that at CNBC's feet - most of the professional market had no idea because they were looking at different stuff. Put Stewart in the hot seat and pound him on what CNBC knew and when they knew it and you would find, in a short period, that he did not have a leg to stand on. A therefore B therefore C would break down. Thus his accusations were completely and profoundly ignorant, and therefore his browbeating attack of Cramer repugnant.

To change the topic completely, to Wall Street's blame, there are two major issues: high leverage, and products. The issue of high leverage actually interacts with products. A bank with 12-1 leverage (prudently capitalized by US standards and much more so by historic Euro standards) is only prudent to the extent that its products are well understood, for real, like well made home mortgages and corporate loans - good old fashioned banking. Increase the leverage and increase the complexity of the products, when complexity inherently means less well understood, as does newness, and the question of risk gets fuzzy. The regulators and the investment banks, particularly, used the output of risk management quant jocks to measure the potential risk, especially using a term called VAR, or value at risk. I have long thought that approach was flawed and that risk management functions were an exercise in modeling unknowns in less than satisfactory ways. I did not think multi-moves ahead to perceive that when (not if) they got it wrong the whole system would be at risk. I did tell colleagues years ago that VAR, derivatives, and market participants who used only market prices to make their investment decisions were relying on a very small base of old fashioned investors to do the real fundamental work. I did warn clients two years ago that we would someday go through the first unwind in derivatives the world has ever seen and it would therefore be the scariest the world has seen, leading to great investment opportunities - I did not guess how great.

If I, 1centaur, with my personality and attitude towards risk, had been CEO of an investment bank or a commercial bank trying to be an ibank, I would have pushed long and hard enough on the people involved with structured products to find out how much housing prices had to decline to blow up those structures. I might then have gone on to figure out what the consequences of those structures blowing up would be on some other structures. It would not have taken too many steps along that road to scare me, and I would have de-risked (a modern term) my bank, told the world why, and probably been punished in the market for being such a worrier. With my attitude towards risk, I would never have been in that position in the first place.

Should the CEOs have understood their real risk position better than they did, or perhaps they did and did not do anything about it? Yes, one or the other I think, and that will be a focus of many in the months to come. Should the risk management teams have understood the real risk better or perhaps they did and did not push it? That too is fair game. Should regulators have understood the risk better, given that they were uniquely in the position of understanding systemic risk, not just firm risk? Yes. Should those who professionally invested in banks and ibanks have understood the balance sheet risk better and called on CEOs to cut it back? Probably yes, though disclosure from banks has always been poor for competitive reasons - banks are black boxes to the outside, which is one reason I usually have not invested in them.

As to the % of Wall Street who should have known about all this, I continue to say that number is low. The buy side was putting together portfolios and investing - they are looking at hundreds or thousands of companies at a time. Zeroing in on that one undisclosed aspect of a bank's balance sheet is not something many would do ever, and those that would would most likely look at decades of it not being a problem and move on. On the sell side there are brokers (know nothing, just sell), traders (just look at supply and demand in front of their face), M&A advisors (focus on relationships and what story might look best with another), underwriters (putting bank capital at risk until something can be sold to take bank capital off the table) and product creators (trying to create products that the firm's brokers and traders can sell and trade). Only the last category has a shot at understanding their own product risk (they should have, IMO), while only their bosses should be able to put that product risk alongside capital risk to understand the real risk. That's a very small subset of actors - hundreds of people in a world of hundreds of thousands, including support staff) - who reasonably could have and should have known, in the John Stewart sense. I have worked with product structuring people, and I seen how they often focus on just a little piece of even their own small pie - that's the level of specialization I saw from Wall Street. When I worked with the underwriters of a structured product for our firm and asked them to step back and talk about the forest rather than the trees I was shocked at how little they had thought about the forest. It was the forest that was the problem with subprime structured products, and that became the domino that made all the world delever their balance sheets. I hope I am conveying why I think the focus of certain commentators and politicians is misplaced.

first and foremost, thank you for your thoughtful reply.

for a set of complex reasons, i think, investment banking has a "unique" mindset. my understanding of it is incomplete and imperfect at best. but here is a tidbit i've never forgotten. years ago i interviewed a merrill lynch financial advisor in chicago named denny cummings. he was, and i think still is, a hugely successful private wealth manager. he said, when interviewing prospective new clients, he always asks one question: do you want more than a 10% per year return? if they said yes, he said i'm not your man. he referred to a long-held investment philosophy of the rothschilds, wherein they asked that their money be managed within a 10% spread of gains and losses. aiming for 10% return leads money managers to do sensible things. aiming to return, consistently, 20 or 30% leads to gambling , not investing; to rolling the dice, not advising.

ibanks look for more than 10% return. maybe that's the seed of their, and our, destruction. it seems many, if not all, of the exotic instruments are designed to rewrite the laws of risk and make 20-30+% returns possible. they may be for a short time but over the long haul, 10% seems more realistic.

if i had enough money to be managed by someone smart, i'd try to find someone like denny cummings. give me the rothschild philosophy any day.

unfortunately, to be a client of denny's, you had to have $10m in investable assets. i'm only $10m shy. ;)

finally, it sounds like you'd have been a hell of a lot better CEO than the ibanks had.

1centaur
03-15-2009, 08:08 PM
climb, one irony of your statement is that Madoff was shooting for 8% :)

Here's a key point about investment and commercial banking that I think many have not faced up to but perhaps now they should. If you can earn a fee without putting up capital, your return on capital is infinite. Therefore, if return on capital is one way in which investors have chosen to measure you, you try to generate as much fee business as possible. While Ibanks have what they call "prop desks" (where they invest the bank's capital trying to earn high % returns in the manner of a hedge fund) that is only a small part of the profit pie most of the time. Earning fees (bid-ask spread) from trading, from advising, and from underwriting what you do not keep on the other hand is the name of the game. Now what makes the most fee income? Exactly what is most profitable in all of business - monopoly. No competition for a desired product means high profit margin. How do you create a monopoly in what you trade? You invent the product and become the only firm that understands it. Many structured products are not plain vanilla - they have long indentures with individual features. The buyers cannot create the financial models required to fully understand these products, so they have to rely on common sense, experience, the selling firm and...the rating agencies. Surely, the average buyer of a AAA-product with a LIBOR plus 10 spread thinks, the agencies have created the models that match the ibank model in order to be sure of the rating. Of course, if you do not have the ability to create the model yourself to match the ibank model, you do not have the ability to check S&P's work either. Moreover, you are just a low-paid (relatively) insurance company manager trying to make a few more basis points of yield on high quality securities - wheel creation is not your job.

From what I hear (so this is third hand and thus may be wrong, but I got it from an expert who seems pretty brilliant to me) the agencies' mortgage-backed structured product model did not actually have a setting for nationwide price declines in housing because they had never happened by some measure I now forget (inflation adjusted, perhaps). Only in the last few months (!) has this been added. Methodologies are being adjusted and downgrades are occurring now - hey, did anyone see my horse? I'm sure I bolted the barn door. So AAA ratings reflected, as far as I can tell, assumptions on default rates among people of various credit scores that were true in history, plus some margin of error, but not the giant pick-up in defaults that common sense says occurs when prices decline, nor presumably enough pad to reflect the complete disregard for underwriting standards of a new generation of loan providers at the local mall, who kept none of those loans on their books. You'd think the agencies in creating their models would be interested in those loan underwriting standards. You'd think regulators would be too. But most people just believed that history's comforting numbers were all the data you needed to know. Such is the course of most major mistakes in human history - so simple when seen in the rear view mirror.

On the next round of regulation, focusing on bespoke products that are not kept on underwriter balance sheets, not to mention rating agency models, will be key. This will reduce bank profitability versus history, which is why I sold my Citi stock at $20 after buying it at $16 - I just thought the long-term valuation metrics for banks would be worse; had no idea it would get this bad.

Ray - they (reporters) did not know better and so do not deserve the criticism. They were not given the job of knowing better. They were given the job of reporting what was going on in a market that has a LOT of surface news going on every day, much more than comes out of the political realm. If I were of a mind to criticize any new organization for not having a deep diving reporting team on the job it would be the Wall Street Journal because they can work behind the scenes without undermining their day-to-day reality and that's a bigger news organization that takes its job very seriously. Once again, however, I'd point to the sequence of events. Subprime structured product>all structured product>fear>delevering>too many sellers>bank capital standards vs. balance sheet holdings thought to be safe>infection of the real economy. Anybody could have reported on the high effective leverage of the ibanks at any time for years and the reaction would have been so what, they have risk management functions, they are hedged, the regulators are comfortable with it, why shouldn't I be? To actually piece through the sequence I laid out above, to say as a matter of logic that house prices down 5% will lead to structured problems, that structured products down 80% is the way the arithmetic will work, that down 80% will create problems in the mortgage industry and that will lead to bank assets down a few % and that will leave them undercapitalized, etc. etc. is simply more than anybody can ask of reporters. Heck, even the hedge funds that got the structured part right and made billions undoubtedly underappreciated the bank part, or their stocks would have been down more sooner. Being a little meaner to CEOs along the way would have changed none of this without the brilliance of having the foresight of hedge funds. News people are not brilliant and have full time jobs doing what they do already. Hedge funds are in the brilliant business and either think outside the box or fail. Most fail.

Climb01742
03-15-2009, 08:57 PM
who knew this was a bike forum and graduate class in finance? thanks as always for an enlightening post. it is astonishing the models didn't account for decline in housing values. did their historic metrics not include the 1930s? i'm just guessing but nationwide, housing values_had_to have declined from 1929 to '33 or '39, no (especially given the bubble of the late 1920s)? it would be akin to plotting models of influenza outbreaks beginning in 1919, to (conveniently?) exclude the pandemic of '18.

Len J
03-15-2009, 09:32 PM
climb, one irony of your statement is that Madoff was shooting for 8% :)

Here's a key point about investment and commercial banking that I think many have not faced up to but perhaps now they should. If you can earn a fee without putting up capital, your return on capital is infinite. Therefore, if return on capital is one way in which investors have chosen to measure you, you try to generate as much fee business as possible. While Ibanks have what they call "prop desks" (where they invest the bank's capital trying to earn high % returns in the manner of a hedge fund) that is only a small part of the profit pie most of the time. Earning fees (bid-ask spread) from trading, from advising, and from underwriting what you do not keep on the other hand is the name of the game. Now what makes the most fee income? Exactly what is most profitable in all of business - monopoly. No competition for a desired product means high profit margin. How do you create a monopoly in what you trade? You invent the product and become the only firm that understands it. Many structured products are not plain vanilla - they have long indentures with individual features. The buyers cannot create the financial models required to fully understand these products, so they have to rely on common sense, experience, the selling firm and...the rating agencies. Surely, the average buyer of a AAA-product with a LIBOR plus 10 spread thinks, the agencies have created the models that match the ibank model in order to be sure of the rating. Of course, if you do not have the ability to create the model yourself to match the ibank model, you do not have the ability to check S&P's work either. Moreover, you are just a low-paid (relatively) insurance company manager trying to make a few more basis points of yield on high quality securities - wheel creation is not your job.

From what I hear (so this is third hand and thus may be wrong, but I got it from an expert who seems pretty brilliant to me) the agencies' mortgage-backed structured product model did not actually have a setting for nationwide price declines in housing because they had never happened by some measure I now forget (inflation adjusted, perhaps). Only in the last few months (!) has this been added. Methodologies are being adjusted and downgrades are occurring now - hey, did anyone see my horse? I'm sure I bolted the barn door. So AAA ratings reflected, as far as I can tell, assumptions on default rates among people of various credit scores that were true in history, plus some margin of error, but not the giant pick-up in defaults that common sense says occurs when prices decline, nor presumably enough pad to reflect the complete disregard for underwriting standards of a new generation of loan providers at the local mall, who kept none of those loans on their books. You'd think the agencies in creating their models would be interested in those loan underwriting standards. You'd think regulators would be too. But most people just believed that history's comforting numbers were all the data you needed to know. Such is the course of most major mistakes in human history - so simple when seen in the rear view mirror.

On the next round of regulation, focusing on bespoke products that are not kept on underwriter balance sheets, not to mention rating agency models, will be key. This will reduce bank profitability versus history, which is why I sold my Citi stock at $20 after buying it at $16 - I just thought the long-term valuation metrics for banks would be worse; had no idea it would get this bad.

Ray - they (reporters) did not know better and so do not deserve the criticism. They were not given the job of knowing better. They were given the job of reporting what was going on in a market that has a LOT of surface news going on every day, much more than comes out of the political realm. If I were of a mind to criticize any new organization for not having a deep diving reporting team on the job it would be the Wall Street Journal because they can work behind the scenes without undermining their day-to-day reality and that's a bigger news organization that takes its job very seriously. Once again, however, I'd point to the sequence of events. Subprime structured product>all structured product>fear>delevering>too many sellers>bank capital standards vs. balance sheet holdings thought to be safe>infection of the real economy. Anybody could have reported on the high effective leverage of the ibanks at any time for years and the reaction would have been so what, they have risk management functions, they are hedged, the regulators are comfortable with it, why shouldn't I be? To actually piece through the sequence I laid out above, to say as a matter of logic that house prices down 5% will lead to structured problems, that structured products down 80% is the way the arithmetic will work, that down 80% will create problems in the mortgage industry and that will lead to bank assets down a few % and that will leave them undercapitalized, etc. etc. is simply more than anybody can ask of reporters. Heck, even the hedge funds that got the structured part right and made billions undoubtedly underappreciated the bank part, or their stocks would have been down more sooner. Being a little meaner to CEOs along the way would have changed none of this without the brilliance of having the foresight of hedge funds. News people are not brilliant and have full time jobs doing what they do already. Hedge funds are in the brilliant business and either think outside the box or fail. Most fail.

Some of the most insightful posts I've seen on any forum....thanks for the series.

len

Ray
03-15-2009, 09:37 PM
who knew this was a bike forum and graduate class in finance? thanks as always for an enlightening post. it is astonishing the models didn't account for decline in housing values. did their historic metrics not include the 1930s? i'm just guessing but nationwide, housing values_had_to have declined from 1929 to '33 or '39, no (especially given the bubble of the late 1920s)? it would be akin to plotting models of influenza outbreaks beginning in 1919, to (conveniently?) exclude the pandemic of '18.
Yeah, thanks guys. I always learn a lot from these discussions, where I don't have much of an ideology or much of an idea, for that matter. Its amazing to me how this entire bubble and the entire mess we're in now seems to be predicated on the idea that American home prices would never go down. Whether in the models used for forecasting or in the brains of homeowners borrowing on equity, or the new buyers going for way too much based on assumptions of increasing value, or in the minds of foreign consumers of the securitized mortgage bundles, it was ALL based on that one assumption.

I feel good that I didn't make any stupid decisions based on it, but I did take a ride UP the market and then part of the way back down. But because of a good advisor, much better off than if I hadn't taken that ride at all.

-Ray

Flat Out
03-16-2009, 08:31 AM
As they say in Boston, you guys are wicked smaaaat.

:)

William
03-16-2009, 08:56 AM
As they say in Boston, you guys are wicked smaaaat.

:)


I thought that was “whicket smaaat”. :D


Very enlightening information. Thanks. :cool:



William