Monday, March 17, 2008

CNBC Mad Money: Is your money safe after the Bear Stearns meltdown?


CNBC did a comedy gig tonight by Dave Cramer (as bald as Dr. Phil and as bald as me) on the “Mad Money” program to make fun of the entire Bear Stearns and mortgage meltdown mess. This was about the same time Lou Dobbs was chastising the Federal Reserve for ignoring “moral hazard” and saying that big boy banks will be rewarded for reckless behavior. In a sense, the point of the program is to determine whether “your money is safe.”

Cramer explained what the Bear Stearns bailout means. The Fed is providing “FDIC insurance for hedge funds” and derivatives, and “securitizations.” Actually, the accounts at Bear Stearns were never in danger. What was lost, almost wiped out at the stroke of a pen, was the equity in the investment bank Bear Stearns itself.

The real economy, where real goods and services are produced, doesn’t seem to be affected the way the paper economy or “financial Phantom Zone” is. Cramer later talked to somebody at CSX (the freight railroad) about how it makes money. (But, I remember that in the 1970s, the Penn Central went under, “couldn’t pay its bills”.)

He also interviewed the CEO of Airgas (ARG), a large distributed of safety products. Cramer called Airgas “a new kind of bank.”

As for the mortgage meltdown, how much sense does it make to offer low-wage consumers below-market payments for five years, and assume that most of them will be making more in five years, and that the houses will appreciate, meaning that “black balloons” could be refinanced. That happens only if real wealth is increasing enough. It doesn’t sound as though even the traders on Wall Street understand Algebra II very well.

Paula Deen followed with a report on Dubai, "The Big Idea". They showed the space-age "Arabia", all built in the last 30 years with oil money (an indoor ski resort, and a new shopping center four times the size of the Minneapolis Mall of America), and "The Palms", artificial peninsulas for homes that would seem to be vulnerable to flooding if sea levels rise too much with global warming.

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