Is Cramer totally incompetent?
Posted by Ray on April 16, 2010 under Main | 
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We all know the answer to that question, but he really has taken the cake today. As Goldman defends itself against this lawsuit Cramer had a piece on CNBC titled “Cramer: Goldman Invested Own Money in CDO.” In this article he cites an unnamed source, which is the first red flag, that stated Goldman did not short this CDO. Well, who cares as that is not the allegation. The allegation is that Goldman allowed Paulson to pick out lousy mortgages to short, in order to create the synthetic CDO, and did not disclose to investors that this CDO was created by a guy who wanted to short the market. The charges claim that the marketing of this CDO was said to have been picked by an “independent” third party which is patently false, unless Paulson & Co. wanted to lose money. As an aside, this is right about the time Goldman started to short the sub-prime market according to my sources, you know, publically available information.
The question is about whether Goldman did this, I think they did, and what other banks might have done the same thing, they all copy each other and the synthetic CDO market was a very esoteric vehicle to invest in. The CDO market was also controlled by a few main banks, Goldman, Morgan, BoA, Deutsche Bank, Citi and a few others. These banks kept the prices of the CDS swaps low, meaning the buyers, i.e. Paulson, was not making any money, as the market was collapsing which shows that the banks were deluding themselves about the reality of the market. Most CDO’s only needed a 5% default rate to blow up, banks did not move the prices of the CDS’s in the buyers favor until well after that 5% default rate, read The Big Short to verify. In other words, these guys controlled the market, created a product they knew was crap (the short sellers picked what they wanted to short!) and then sold these synthetic products to unwitting clients, they had to invest in some of them because by 2007 all the suckers were less likely to buy synthetic products.
My point is simple, no one claimed Goldman shorted this specific CDO, but misled investors to buy it by distorting the facts about it. Are they guilty? More than likely, but I am sure the case will be settled with admission of guilt. Does this mean AIG and other investors might have a claim? Yup, so go buy some GS Cramer, I am sure he will tell you that later tonight. Did other banks do the same thing? More than likely. It is hard to believe GS was the only bank that did this when they were a relatively small player in that business, compared to Citi, Merrill Lynch and others. Does Cramer grasp those facts or thoughts? I don’t think so.
After all, this is the guy who thinks the market going up every day for a month and a half is a good thing. Then again, Cramer, whose selective memory will omit this in a week or tonight, did this on his show last night:
I guess Cramer never made money shorting stocks… yeah right. I respect Cramer the hedge fund manager, but this other guy, what he turned into, is disingenuous.
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