Guy Berger

OK -- I don't think this contests the main thrust of the article, which is that in material terms inequality in this country is much lower than it was during the Gilded Age. Being poor in this country is tough, and "things aren't as bad as they were 100 years ago" would be a laughable excuse to avoid anti-poverty policy. Guy

I don't think I said anything about consumption being unproductive. Greater expenditure meets diminishing returns in terms of its welfare effect (this is what the Economist article correctly argues) and therefore can be avoided without serious welfare loss when there is a crisis; so it's unreliable and therefore contributes to instability. MG OK, won't disagree with anything you just said -- I misunderstood. Apologies. Guy

I've been enjoying his playing with Ben Webster over the past month or so. Superb. Guy

One thing to add -- Chas is 100% right that any consideration of welfare measures which disregards risk/volatility is highly flawed. If the median household now has superior consumption on average, but the distribution of possible consumption levels for that household is much wider, they could be worse off. Guy

A few things: 1) Consumption isn't necessarily subjectively-measured -- it's an economic statistic like income. 2) In principle, consumption is a better measure than income because people derive their welfare from what they consume, not from what they earn. It can also take into account that the basket of available goods isn't staying static over time. 3) That said, you are 100% correct that any sort of snapshot, static number will give at best an imperfect sense of economic well-being -- we care about the "stream" of consumption, not just consumption at any point in time. 4) Debt-fueled consumption is not necessarily a problem. The article itself -- well, I think it is fundamentally right that in strictly economic terms "material" inequality is much lower now than it was 150, 100, 50 years ago. I don't think this is the only important measure of inequality, but I do think it is important. Unlike MG expenditure on "unproductive" consumption doesn't really bother me.

No argument about that. I hope they won't slack off after Murdoch dilutes the WSJ. Guy

I know a frighteningly large number of people, including possibly some on this list, actually make investment decisions based on what this (entertaining) maniac says on his show, so please read this. Jim Cramer has a new book in which he advises most unsophisticated investors not to buy individual stocks, but rather invest in passive index funds. Also attached at the bottom is Henry Blodget's classic article for Slate, " Pay No Attention to That Crazy Man on TV". ------------------------------------------------------ Business Week: Jim Cramer: Mad No More? 2007-12-17 10:18 (New York) After years of manic rants and crazy antics on live TV, you might think Jim Cramer's shock value has worn off. How about this for a new surprise? Jim Cramer, sober-minded personal finance guru. It creates some contradictions. The hyperactive stockpicker on CNBC's Mad Money has a new book out advising most readers not to buy individual stocks at all. The man who says colleagues called him "Reverend Jim Bob Cramer of the Church of What's Happening Now" is now patiently investing his charitable trust for the long term. Proud of His Plea to Bernanke But is Cramer giving up the props, the sound effects, the temper tantrums, and the lightning rounds of off- the-top-of-his-head stock opinions? Is he a new, distaff version of Jane Bryant Quinn? Not a chance. His proudest moment of the year is an on-air tantrum in the middle of the summer's financial crisis, a plea to the Federal Reserve Chairman Ben Bernanke to take action. "He has no idea how bad it is out there. He has no idea!" he told CNBC's Erin Burnett in what's now a YouTube favorite. Not long after a mostly calm interview with BusinessWeek in mid-December, Cramer was on TV sucking helium to demonstrate his enthusiasm for a gas distributing company. "I am trying to entertain," Cramer says. "I admit that." But, he adds, he's also trying to help people. Don't Forget About Your Homework The new book Jim Cramer's Stay Mad for Life is a primer for saving and investing. It advises readers to pay off credit cards, make the most of 401[k] plans and individual retirement accounts [iRAs], and get the right kinds of insurance. The subtitle of the book, written with Cliff Mason: Get Rich, Stay Rich [Make Your Kids Even Richer]. Most people actually won't get rich by buying individual stocks, Cramer says. Unless you do your homework, namely spending an hour a week researching for each stock you own, "You won't beat the market, and you'll probably lose money," he writes. [Guy: It will take a lot more research than that...] For Cramerites willing to do the research, the book helps construct a long-term, diversified portfolio. For most people, however, he advises low-fee stock index funds. Henry Blodget Is No Cramer Fan The new approach might please Cramer's critics, who have worried his focus on trading your way to riches sets a bad example. Henry Blodget, the former Merrill Lynch (MER) stock analyst who turned writer after being forced from the industry in a scandal, called Cramer a "chair-throwing, self-aggrandizing clown," who gives terrible advice. However, as Blodget wrote in Slate early this year, he's obviously a smart man who knows better. Cramer embodies "the essential conflict in the American financial industry; the war between intelligent investing [patient, scientific, boring] and successful investment media [frenetic, personality-driven, entertaining]." Now, Cramer is echoing the financial advisers who have long warned that individual investors almost never beat the market. The more short-term trades investors make, the more they tend to lose. The "Daily Struggle" to Save Money But in his 14 years as a hedge fund manager, Cramer was a rapid trader, constantly moving in and out of different positions. Lessons from those years found their way into Cramer's previous books and onto many episodes of Mad Money. Times have changed, he writes. Now, partly due to new regulations on how much information executives can reveal to fund managers, "trying to game short-term movements in stocks [is] almost impossible," he says. To advise readers and viewers to trade short-term, Cramer says, is like telling them "you too can play in the NBA." A few might be able to do it, but the vast majority won't. "I've evolved to the point where I see the daily struggle that people go through to just put away $100 a month," Cramer says. It's a more realistic approach. "I wish I wrote this book first," he adds. Avoid the "Cramer Spike" But just because Cramer writes a responsible book doesn't mean his viewers will refrain from using his advice in irresponsible, money-losing ways. The worst example is the "Cramer spike," the jump in price that stocks often make right after they're mentioned on his show. Viewers who buy at these elevated levels will almost always lose money as inevitably the stock drops back to normal a few days later. Cramer warns against this. "I'm pleading with people not to participate in the Cramer spike," he says, urging them to wait before buying. Cramer's critics might prefer he not do the show at all. "There is a component of people who are not going to listen," but there are many other people who are helped by Mad Money, he says. So the show will go on. "I'm not going to bow to the reckless people," he says. Still Criticizing the Fed Cramer bridles at those on Wall Street who say all his shouting and emotion are getting out of hand. Did he really need to flip out on CNBC last August, ratcheting up the fear and anxiety in an already skittish market? "I'm very proud of that call," Cramer says, saying the Fed really had no idea of the severity of the crisis. Arguably Cramer was proven right by the market turmoil that followed. "I subsequently heard from people at the Fed that it had an impact," he says. He's still criticizing Bernanke and the Fed, most recently blasting them for not cutting rates enough at their Dec. 11 meeting. In a lot of ways, this is still the same old, excitable Cramer. The book may contain sober advice on bonds and disability insurance, but he also uses it to rail against a number of targets: 401[k] plans, both for their lame offerings and companies that promote "the most dangerous investment you could ever make" -- buying your employer's stock; the high fees and lousy records of most mutual fund managers; and the journalists who criticize his record as a stockpicker. A New Leaf? Cramer says he tried hard to liven up the "stultifying" subject of personal finance. But writing about certain topics, Cramer doesn't try to hide his boredom. "Investing in stocks can and should be engaging, interesting, and fun," Cramer writes. "Investing in bonds is something that will always be necessary and boring." The new Cramer may be turning over a new, more responsible leaf. But he's still a stock junkie through and through. ------------------------------ bad advice: How to lose your money fast. Pay No Attention to That Crazy Man on TV Why you should never take Jim Cramer seriously. By Henry BlodgetPosted Monday, Jan. 29, 2007, at 5:48 PM ET Click here to read more of Henry Blodget's Bad Advice. It would be impossible to write a "Bad Advice" column about investing without discussing Jim Cramer. I have been through several stages of feelings about Cramer. My initial belief was that the former hedge-fund manager, host of CNBC's hit show Mad Money, and author of several books about speculating was perhaps the worst thing to happen to the financial security of average Americans since the crumbling of the Social Security system. I developed this theory in the early Mad Money days, when Cramer's stock-picking track record—if on-air shouts, blurts, and Tourette's-style tics can ever be called a "record," which, in a serious context, they obviously can't—remained close enough to market averages that Cramer was not laughed out of town when he suggested with a straight face that he was giving good advice. His claim, of course, was ludicrous: Over short time frames, even orangutans have about a 50/50 chance of beating the market, especially when ignoring risks and costs, so his pointing to a several-month record as evidence of good advice was absurd. In 2006, however, when the performance of Cramer's ravings relative to the market went south, he downplayed the idea that he could help viewers whip Wall Street, and, instead, said that he had "just one goal in mind—to help you make money." According to one observer, he apparently failed to clear even this low hurdle last year despite nearly every major equity market on earth being up between about 15 percent and 30 percent. As readers of this column and the "Wall Street Self-Defense" series know, when investment gurus start patting themselves on the back for "making you money," they are condescendingly presuming that you know almost nothing about investing. When you own a diversified portfolio of stocks, it is rarely the stock selections that make you money but the performance of the stock market overall—which, thankfully, usually goes up. What a truly talented stock-picker will do is select stocks that beat the market, after costs, without exposing you to more risk than the market. Because the vast majority of stock-pickers can't do this, you are almost always better off in a diversified portfolio of low-cost index funds. Properly constructed, such a portfolio will, over decades, make you more money, with less risk, than even an above-average stock-picker (let alone a chair-throwing, self-aggrandizing clown). But the more I thought about Cramer, the more I realized that pointing out that he gives terrible investment advice would be like pointing out that the sun rises. Worse, I would be dismissed as a wet blanket who didn't get that the point of Mad Money was just to have a bit of ironic fun. I mean, of course Jim Cramer gives terrible investment advice—we all know that, right?—and we only watch the show because, well, because he does possess a certain bizarre type of market and entertainment genius—if there's a pundit out there with more opinions about more stocks, I've never seen him—and he's irreverent, madcap, and, yes, even brilliant, in an idiot-savant, freak-show sort of way. (Moreover, Cramer is mesmerizing reality TV. Admit it: You watch because you wonder if this is the night he finally has a heart attack, kills someone, or explodes in a tirade of expletive-laced slander.) Reviewing the list of common Mad Money show segments (Stump the Cramer, Am I Nuts?, Pimpin' All Over the World) and sound effects (squealing pigs, a wrecking train, a toilet flushing, a screaming man falling out a window and then crashing on the ground), I realized that, yes, I was taking Jim Cramer waaaaaay too seriously, that his nonstop comedy routine about being a brilliant and respected investor and making everyone rich is just shtick, and that there couldn't possibly be a Mad Money viewer who actually believes that he provides intelligent advice. There is, of course, another James J. Cramer—the one who graduated from Harvard Law School, writes an often sober and astute column in New York magazine, and might actually have put up decent numbers at a hedge fund in the 1990s (link) impossible to say for sure until we can evaluate year-by-year relative returns, risk profile, standard deviation, etc.). That Cramer is a smart man. Smart enough to have read decades of conclusive research about the lousy odds facing all speculators— especially amateurs; smart enough to understand the crippling impact of research, transaction, and tax costs; smart enough to know that when a stock tip is delivered on national television it is no longer of any use (because everyone else now has it); and smart enough to write, in 1999, about an excellent book by a true hero of individual investing, John Bogle, that "After a lifetime of picking stocks, I have to admit that Bogle's arguments in favor of the index fund have me thinking of joining him rather than trying to beat him." The two Cramers—brilliant James J. and vaudeville comic Jim—embody the essential conflict in the American financial industry: the war between intelligent investing (patient, scientific, boring) and successful investment media (frenetic, personality-driven, entertaining).

In other words, create a whole different game than baseball? Or at least, an extremely different version of it? I was being facetious. But my point stands -- if we are going to get extremely exercised about the health risks faced by professional baseball players, then there are plenty of things that could be changed in the sport that will have a far more significant impact on this "problem" than cracking down on steroids. More seriously, we have video footage of the sport going back to 19xx -- we can establish that as the upper bound on acceptable physical exertion for baseball players and enforce it as necessary. That wouldn't create a "whole different game" and would reassure those in this thread who are agitated about the health risks faced by professional baseball players. Once we have taken those steps we could consider reducing less significant health risks like those caused by steroids. I'd still be glad to see any concrete medical evidence (published in top journals) that establishes the health consequences from using steroids. Guy I can't believe I'm dealing with this kind of foolishness. Number one - we're talking about the health consequences of using substances that are illegal without proper medical authorization. That is completely different from the foolishness you are spouting about ways to reduce the health risks associated with playing the game as it was intended. Sorry, Dan, I misunderstood. I had thought you were genuinely concerned about the health risks to professional baseball players. Guy

In other words, create a whole different game than baseball? Or at least, an extremely different version of it? I was being facetious. But my point stands -- if we are going to get extremely exercised about the health risks faced by professional baseball players, then there are plenty of things that could be changed in the sport that will have a far more significant impact on this "problem" than cracking down on steroids. More seriously, we have video footage of the sport going back to 19xx -- we can establish that as the upper bound on acceptable physical exertion for baseball players and enforce it as necessary. That wouldn't create a "whole different game" and would reassure those in this thread who are agitated about the health risks faced by professional baseball players. Once we have taken those steps we could consider reducing less significant health risks like those caused by steroids. I'd still be glad to see any concrete medical evidence (published in top journals) that establishes the health consequences from using steroids. Guy

Jim, happy birthday. May you keep enlightening us for centuries to come. Guy

No, that I am completely indifferent about. I am just glad about the results. Guy So you are grateful for baseball played by juiced up athletes yet completely indifferent should they suffer adverse medical consequences in the future. My understanding is that the "adverse medical consequences" are minor. In terms of current human tragedies, this probably ranks at #1,.......,000,....000,005. From the Mitchell Report: I agree, these are decidedly minor medical consequences. Everyone would enjoy sporting events so much more if we'd just let the athletes use whatever supplement modern science can produce. What are the probabilities of any of those things happening as a direct result of using steroids? The statement you quote is meaningless without some actual numbers. Obviously there is a proven medical link between the two. And you should well know that coming up with precise numbers is problematic because it would require an unethical use of steroids. If there is an "proven medical link", then there should be some concrete evidence from medical studies, as part of a controlled experiment and/or a rigorous statistical study. That's how "medical proof" works. We certainly have comparable information on the effects of substances that are far more dubious legally than steroids. You can't seriously assert that this has anything whatsoever to do with the topic at hand. Injuries occur to anyone from the "weekend warrior" to the professional athlete. They have nothing to do with the proven deleterious medical effects of steroid use/abuse. Oh, I can totally assert it. The probability of injury would go down dramatically for most professional baseball players if they reduced the number of hours they have to play. The game is more physically taxing than it was in the days of Babe Ruth, so it is extremely likely that if we restricted players' exertion we would reduce baseball-related injuries. If we cut the number of games per season to 20 (with a week layoff, like football), limited players to one inning per game, illegalized pitches over 50 mphs or constrained field movement to brisk walking, we would surely improve the health of pro players by far more than the banning of steroids could ever hope to achieve. Guy

You're glad people pumped their bodies full of steroids and whatever else, to gain artificial advantages over honest players? No, that I am completely indifferent about. I am just glad about the results. Guy So you are grateful for baseball played by juiced up athletes yet completely indifferent should they suffer adverse medical consequences in the future. My understanding is that the "adverse medical consequences" are minor. In terms of current human tragedies, this probably ranks at #1,.......,000,....000,005. From the Mitchell Report: I agree, these are decidedly minor medical consequences. Everyone would enjoy sporting events so much more if we'd just let the athletes use whatever supplement modern science can produce. What are the probabilities of any of those things happening as a direct result of using steroids? The statement you quote is meaningless without some actual numbers. Athletes routinely place themselves at risk for injury as part of their line of work, and I am guessing that those risks are substantially higher than those of using steroid usage.

You're glad people pumped their bodies full of steroids and whatever else, to gain artificial advantages over honest players? No, that I am completely indifferent about. I am just glad about the results. Guy So you are grateful for baseball played by juiced up athletes yet completely indifferent should they suffer adverse medical consequences in the future. My understanding is that the "adverse medical consequences" are minor. In terms of current human tragedies, this probably ranks at #1,.......,000,....000,005.

You're glad people pumped their bodies full of steroids and whatever else, to gain artificial advantages over honest players? No, that I am completely indifferent about. I am just glad about the results. Guy

I agree 100%. That's the nature of asset bubbles... even perfectly rational people who know that asset prices are completely unhinged have an incentive to buy in (as long as you aren't the one left holding the hot potato), and it's extremely risky to bet on the bubble popping. Let's be honest -- Goldman got extremely lucky. If the bubble had kept going sufficiently longer they could have lost a ton of money on these positions, as Bear Stearns did. Let me be clear when I say "people" I mean it loosely to include all financial market participants. Everybody wants that magic asset that gives high yield with minimal risk (the modern equivalent of the money tree) and during bubbles they are willing to pretend that the risk simply doesn't exist. Guy

MG, The basic punchline is that central banks are worried that the current credit crunch is (A) going to generate widespread chaos in the financial system and (B) going to generate spillovers into the rest of the economy in the form of tighter lending. (In other words, the crunch is causing a large effective tightening of monetary policy even though policy rates have not gone up.) The belief is that traditional monetary policy tools (raising and lowering interest rates) are not as effective as they were in the past and that more targeted policy is needed. We will see. The coordinated announcement itself is sort of a "sunspot", the actions are operationally independent except for the currency swap. Guy

I think it's a question worth asking, though I'm inclined to think that there isn't a conspiracy there. Most organizations of this type have Chinese Walls theoretically separating these functions, so the guys packaging CDOs and other structured finance products are supposedly kept at arms' length from the trading desk (who in this case were shorting the ABX). In reality, we are talking about human beings and these people talk. Information inevitably flows from one end to the other. You also have the top management, who must know what is going on in both places. That said, I'm inclined to think the conspiracy theory that Goldman was intentionally manufacturing crap SF products so they could effectively short them is implausible for several reasons. (A) they are now stuck with a bunch of them on their books and (B) as far as I know, there were enough players in this market that Goldman's ability to move the market through their own structured finance offerings was somewhat limited. So why was Goldman (and other financial institutions) manufacturing crap SF products? The sad truth is... they were giving the "people" what they want. A few other points -- I know at this point I am echoing the "Communism didn't fail, its misapplication did" line, but I think it's fundamentally true -- subprime mortgages and securitization of assets are both great ideas which generate economic gains, and they worked until 2004 or 2005. The problem is that the incentives in the system led to things going very wrong after that, and that's the mess we will have to deal with for the next few years. Second point -- not sure if you guys remember, but the first real inkling of problems in subprime mortgages leaking into financial markets were in June, when the two Bear Stearns hedge funds collapsed. Like Goldman, these BS were also shorting the ABX. Unfortunately for them the margin calls came a little too early. If they could have held out a little longer they would have made boatloads of money and maybe we'd be talking about BS's genius traders instead of GS's.

Never heard that about him. But if he was, that would kind of make him not boring, wouldn't it? He was a very tough Chief Secretary to the Treasury (the job is to cut spending plans down to size) in the early days of the Labour Government. MG I actually got him mixed up with Alastair Campbell. When the Northern Rock debacle started I read AD's wikipedia biography, he apparently won the "most boring politician" in several polls. Also "Darling's Darlings" and the cat named after Sybil Fawlty. Guy

Well, I am glad they did it. It probably made baseball more exciting the last decade or two. Guy

The UK's most boring politician, IIRC. I was surprised to discover (at the beginning of the NR crisis) that he was Brown's Chancellor, I had always assumed he was a Blairite. Wasn't he involved in the sexing up of the Iraq dossier? Guy