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March 19, 2008

Jim Cramer: Math Is Hard
Update: Miscommunication?

I feel bad for him a bit, because this seems to be a career-ender. Of course, I feel worse for anyone who listened to his investment advice as regards Bear Stearns ("Don't move your money -- that's just silly!").

Correction: What follows appears to not be right. See the update.

It occurs to me -- but I'm an idiot; can anyone explain if this is right? -- that what has him so defeated here is that he made a colossal but very basic error. He seems to have thought the Federal government was "guaranteeing" most of Bear Sterns' value. He seems to get tripped up on this as he now allows "Well of course they don't guarantee the equity."

Is it possible he made such an error? I don't know enough to be able to say. All I know is that his explanation here seems ludicrous to me. It's not that he made a big mistake -- it's that he can't offer a good reason for the mistake, which in turns leads me to suspect he can't admit the actual reason for the mistake, as it would be too embarrassing. I mean, mistakes and bad advice are relatively common in this industry, right? Why is he unable to offer the typical sort of reasoning? Why does he seem to be double-talking? Why does he wind up essentially claiming he lied to his viewers in order to prevent a "run on the bank"?

I can only imagine making that claim if the real reason for the error is blatant incompetency.

Background first, if you don't know.

Shivering douchechills warning.

Misunderstood? I got the distinction between deposits and equity, but I thought he was actually suggesting that the government's guarantees would somehow save the company's stock value.

After a comment from TankLdr, I rewatched... He does seem to be talking about deposits, and not yanking cash from the bank. Although I can see someone being confused and thinking he meant "Hold Bear Sterns stock."

While he is unclear as to what he's talking about, I think, looking at this, it was an error in communication. He's talking deposits, (some) viewers think he's talking about equities.

So now his frustration and talk of a "run on the bank" seems to make sense-- deposits, being insured up to $125,000 or whatever it is, don't need to be moved, and moving cash out below that threshold would indeed be "silly." Or if not silly, not necessary, at least. And his frustrations seem to come from a combination of his imprecise language, plus some dunderheaded interpretation of that language by investors.

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posted by Ace at 10:29 AM

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