UPDATE 10:17 CST: HuffPo has the video of the 2006 interview with Cramer & Wall Street Confidential that I cite below, in which he admits to blatantly and illegally fomenting the market to make money through the naked short-selling of stocks - and even recommending it as advice to hedge fund managers, calling those who are in the market for longer than a day "the moron longs"…which would be anyone that’s not a hedge fund manager, I guess.
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The Daily Show’s recent pieces on CNBC - and Jim Cramer specifically - are pure comedy gold, especially since they highlight everything that has been wrong with our financial system for the past couple of decades. But on an absolute lark, I took the suggestion of a commenter on a site I frequent and looked into Deep Capture, a financial news investigative reporting blog that supposedly had more in the way of news on Cramer. I soon found myself in the midst of a four-hour absolute readfest, and the piece-de-resistance was the bio article on Jim Cramer done by Patrick Byrne, Jim Cramer is a Complicated Man.
(WARNING: That article, and probably this one, will take a while to read, but it is well worth the time, if you have it.)
Considering the litany of misjudgement and seemingly inexplicable wrong-ness Cramer has been caught in during the past days, weeks, and months of economic cliff-diving, I thought it might be a good idea to take a little time to see exactly who in the hell this guy was, where he came from, and why he deserved such an arrogant and self-serving motto like "In Cramer We Trust" being emblazoned across the screen of a supposedly professional financial news network broadcast. SPOILER: It did not disappoint…
Cramer started out, after graduating from Harvard in 1977, as a law student, but quickly turned to investing instead. Apparently he came up right smack-bang in the middle of the tide of unabashed corruption we’re suffering the fruits of right now, because it doesn’t take long in that article to read and find out exactly how Cramer was able to make so much money so fast. Here’s a hint - illegal.
Byrne first prefaces the info by giving us this gem from Byrne’s own schooling in the investment industry, from evidently more scrupulous mentors:
The first lesson I had in securities law was given me by Gordon Macklin, a revered figure within modern Wall Street history: he built NASDAQ, and was the Co-CEO of Hambrecht & Quist. I was fortunate enough to have Mr Macklin as a kind of Dutch Uncle to me from the time that I was a teenager until his passing in early 2007. When I was a lad I once asked Mr. Macklin, “Do companies ever do this-or-that in order to make their stocks go up?” Macklin replied, “There is one thing you need to know about securities law: anytime someone purposefully does something in order to make a stock go up or go down, he is doing something illegal. You can go to law school and study it for years, but that’s what it boils down to. You make bets on stocks, but you never purposefully make the price of a stock move in either direction. It’s manipulation. It’s illegal. That is the first thing you need to know about the stock market.”
Not long after giving you that little nugget, Byrne takes you into Cramer’s tutelage under his future wife, where he self-admittedly learned (from the woman he apparently calls the ‘Trading Goddess’ in his own book) his market prowess. This is coming out of his own mouth (well, book actually - Confession of a Street Addict, 2002):
“Of course, she said. So what you had to do was make dozens of calls to brokers and analysts every day to ask them what they thought of stocks. She said you looked for situations where the analysts were growing more positive and you fed them positive information that you got from others. You pitted them against one another. You told them that someone else was going to upgrade. If you could be sure they were warming up to a story, or if you caught them on the phone before they told their sales forces that their earnings estimates were too high or too low, you might have something.
“Karen explained to me that the analyst game was a game of sponsorship. Analysts like to get behind stocks and bull them. You have to get in on the ground floor when they start their sponsorship campaign. If Merrill is the sponsor of a stock, it could be good for 5 points. If Goldman sponsored something, it could be good for 10. You want to buy something and flip it—sell it immediately—into the sponsorship. That’s the only sure thing on Wall Street.
“When I asked her how we could find out about all of these wonderful things when I was jut a little hedge fund manager, she said one word: ‘commish.’… Commissions, she explained, determined what you are told, what you will know, and how much you can find out. If you do a massive amount of commission business, analysts will return your calls, brokers will work for you, and you will get plenty of ideas to make money, on both a short- and long-term basis… Commissions greased everything.” (Confessions of a Street Addict, pages 51-52.)
I’ll not take all the surprises away, because that by NO means even scratches the surface of this cat. The last thing I’ll add is another little nugget (from antisocialmedia) the further demonstrates Cramer’s indifference to complying with laws in the name of moola - again, straight from his own mouth in an industry-oriented interview with Wall Street Confidential…though he never, as you will clearly see, meant this gem to be for public consumption. The entire thing is worth the read, but these bits are just so damn illuminating:
Cramer: So let’s say you take a longer-term view intraday and you say, “Listen, I’m gonna boost the futures, and then when the real sellers comes in, when the real market comes in they’re gonna knock it down and it’s gonna create a negative view.” That’s a strategy very worth doing when you’re evaluating on a day-to-day basis. I would encourage anyone who’s in a hedge fund to do it, because it’s legal.
Task: Right.
Cramer: It’s a very quick way to make money, and very satisfying.
Task: Okay.
Cramer: By the way, no one else in the world would ever admit that, but I don’t care.
Task: That’s right. And you can say that here –
Cramer: And I’m not gonna say it on TV.
Not gonna say it on TV? Pray tell why not?!?! But it gets better downpage…He actually comes right out and throws his hat in the crook ring. After blatantly stating that you can’t "foment" the market by making contrived appearances of stocks’ fortunes, he says this:
Cramer: You can’t create yourself an impression that a stock’s down. But you do it anyway ‘cause the SEC doesn’t understand it. That’s the only sense that I would say this is illegal. But a hedge fund that’s not up a lot really has to do a lot now to save itself. This is different from what I was talking about at the beginning where I would be buying the Qs and stuff. This is just actually blatantly illegal. But when you have six days and your company may be in doubt because you’re down, I think it’s really important to foment if I were one of these guys. Foment an impression that Research in Motion isn’t any good, because Research in Motion is the key. So you would hit this guy and that guy when you would see an offering. When you see a guy who’s bidding, you’d wipe out that guy very quickly. What I used to do was call – if I wanted to go higher, I would take and bid, take and bid, take and bid. If I wanted it to go lower, I would hit and offer, hit and offer, hit and offer. I could get a stock like RIMM for maybe – that might cost me $15-$20 million annually to knock RIMM down. But it would be fabulous because it would beleaguer all the moron longs who were also keying on Research in Motion. We’re seeing that. Again, when your company’s in a survival mode it’s really important to defeat Research in Motion. You get the Pisanis of the world and the people talking about it as if there’s something wrong with RIMM. Then you would call the Journal and you get the bozo reporter on Research in Motion, and you would feed that Palm’s got a killer it’s gonna give away. These are all the things you must do on a day like today. And if you’re not doing it, maybe you shouldn’t be in the game.
(Bold mine for emphasis)
I mean, he is talking to Wall Street Insiders and telling them how he openly and blatantly thumbed his nose at financial law!
I get it…If you’re not willing to break the law - ‘cause hey, the regulators are just too dumb to get it, so that means its fine - then you just shouldn’t be in the game. Well, Mr. Cramer, what about the pensioners whom your advice just flushed down a fucking toilet? I doubt they were "in" your "game," yet this orgy of naked short selling has put them a lot worse off than it has you, even though you had an embarrassingly influential guiding hand in the process.
Seriously, this guy still has a job at NBC?
