In Cramer We Trust

Without trust, markets break down. The U.S. dollar is a fiat currency, which means that its value is derived from the trust we ascribe to our government; as that trust wanes, Americans turn away from traditional financial institutions. During the 2008 financial crisis, many everyday Americans, unsure of who to trust, took their money out of banks en masse. Large commercial banks began to fail; by 2012, almost 450 banks had collapsed. Today, deep into a historic pandemic and recession marked by political division, Americans’ trust is waning again.

On Jan. 27, a group of amateur traders helped push the stock of struggling video game retailer Gamestop to a price of $347 per share. Alarmed, financial experts took to the air to warn against what Alan Greenspan, former chair of the Federal Reserve, calls “irrational exuberance” — an unreasonable, optimistic view that the market will keep rising. Jim J. Cramer ’77, host of CNBC’s finance show “Mad Money,” was of those exasperated experts — “People begin to think, ‘Are prices real?’” he exclaimed on the air.

During a segment of CNBC’s “Squawk on the Street,” Cramer warns viewers that it is unrealistic to expect the stock’s price to continue rising, while simultaneously, a graphic on the right side of the screen flashes that Gamestop’s stock is up 67 percent from the day before.

Cramer, a Harvard graduate, Goldman Sachs alumnus, and former hedge fund manager, is the kind of man from whom Americans used to seek financial advice. But today, traders aren’t listening to Cramer; they continue to trade Gamestop, and they continue to discount his expertise.

Cramer was president of The Crimson during his time at Harvard. His first notable brush with controversy came when he wrote an article alleging his resident dean, Alan Heimert ’49, had lied to the administration. In retaliation, Heimert prevented Cramer from receiving his diploma during his graduation ceremony. After graduating, he worked a few years as a reporter before attending Harvard Law School. Next came Goldman Sachs, where he stayed for three years before founding his hedge fund, Cramer Berkowitz, in 1987.

Cramer claims that Cramer Berkowitz saw fantastic returns during his tenure; his CNBC bio states that the fund compounded returns of “24 percent after all fees for 14 years.” Despite the reportedly dazzling returns, his management was turbulent: His former employee, Nicholas W. Maier, alleged that Cramer would break computers and scream at employees.

While editor-at-large of a finance magazine, he was accused in 1995 of using his position to influence the value of the stocks he covered for personal gain, allegedly earning $2 million for himself in the process. An editor at a competing finance magazine called Cramer’s actions “a legal form of front running.” In 2001, Cramer left investment banking to pursue a career in media, but accusations of wrongdoing followed him.

After the 2008 financial collapse, Cramer faced intense criticism for encouraging the audience of “Mad Money” to hold on to their stock in Bear Stearns. On March 11, 2008, he reassured his viewers: “Bear Stearns is fine. Do not take your money out,” he said. “Bear Stearns is not in trouble.” By March 16, the stock had lost 96 percent of its value. It avoided bankruptcy only because it was purchased by J.P. Morgan Chase later that day.

In October 2008, CNBC ran an ad for “Mad Money” that featured a dramatic voiceover of Cramer chiding his viewers about the dismal state of the market, counseling them that it had been irreparably changed: “It will never make sense to buy and hold so-called blue-chip stocks forever anymore. If last week didn’t prove that you, nothing will.” The video ends with the tagline “In Cramer We Trust.”

During the biggest financial collapse of the past century, Cramer’s show appealed to viewers’ trust in him — the same Cramer who, seven months earlier, told viewers “Bear Stearns is fine” five days before the company collapsed.

In March 2009, Cramer appeared on The Daily Show to discuss CNBC’s coverage of the markets during the 2008 financial crisis with then-host Jon Stewart. During that interview, Stewart criticizes Cramer for his advice to viewers in 2008, and questions CNBC’s reputation as a trustworthy expert on financial markets.

In the same interview, Stewart plays a clip of Cramer in 2006 where Cramer advocates for practices (which he used while serving as a hedge fund manager) that resemble market manipulation, including feeding fake stories to reporters to devalue stocks and strategies to influence futures markets. “I would encourage anyone who is in the hedge fund game to do it, because it’s legal, and it’s a very quick way to make money,” he says in the clip.

That clip and another scandal, in which his media company allegedly collaborated with short-sellers to devalue stocks, drew the ire of the Securities and Exchange Commission, who investigated and subpoenaed Cramer before later dropping those investigations.

Cramer isn’t the only CNBC personality who has angered the public. Memorably, Cramer’s colleague, Rick Santelli, shouted at traders from the floor of the Chicago Mercantile Exchange: “This is America, how many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills, raise [your] hand!”

To many, it seemed the former investment banker was chiding the millions of Americans who had accepted subprime loans because they were told they could afford them — implicitly blaming them for the recklessness and greed of the investment bankers.

His rant stoked the seething rage that many Americans, of all political leanings, harbored about the financial crisis. To some conservatives, Santelli highlighted wasteful government spending and homeowners’ lack of personal responsibility. Conservative pundit Glenn L. Beck credited the start of the Tea Party to that sound bite. Conversely, to those on the left, the absence of empathy and faux rage Santelli displayed may have helped to forge the Occupy Wall Street movement.

Many Americans began to feel that Cramer, Santelli, and the scores of former investment bankers who grace financial news programs, were far more worthy of scorn than foreclosed on homeowners. In their eyes, the difference between greedy investment bankers who ruined the economy and former greedy investment bankers who give hit-or-miss financial advice was negligible.

Given that ire, CNBC’s ad tagline “In Cramer We Trust” was perhaps an admission that Cramer’s value lies in his image, not in his fundamentals — something that Cramer and the market have in common.

In that infamous 2006 clip, Cramer made one comment that flew under the radar: “The great thing about the market is that it has nothing to do with the actual stocks.” Today, that observation seems particularly prescient.

The meteoric rise of Gamestop’s stock was primarily driven by Reddit user DeepFuckingValue, Keith P. Gill in the offline world, who began posting about Gamestop to argue that the stock was undervalued. As Gill made his case, Cramer went on CNBC to state that the fundamentals of Gamestop didn’t warrant the huge jump in the stock’s value, prompting the line: “People begin to wonder, are prices real?”

The more Cramer railed against the Redditor’s apparent “irrationality,” the more the community wanted to buy the stock. Gamestops stock’s value did eventually crash from that high of $347 in late January, to a low of $40 in February, before it steadily climbed back up to $265 by March 12.

A popular post on r/Wallstreetbets, the community behind the Gamestop craze, depicts Cramer as the aged headmaster in the movie “Dead Poets Society,” screaming at Redditors to sell Gamestop’s stock as they proudly, illogically, hold on to the company.

In the depths of a pandemic-driven recession that has further exacerbated income inequality among many, the willingness to listen to Cramer, and people like him, has evaporated. The harder they work to convince the herd of Redditors, angry at hedge funds and the people who run them, that they are in the wrong, the more they put their trust in people like Gill, who gives out free financial advice on his YouTube channel.

Gamestop is not the only ostensibly worthless asset that has gained value in the last year. Since last March, Bitcoin, a favorite financial instrument for many skeptics of the modern financial system, has increased in value by 845 percent. Non-fungible tokens, which are digital images backed by the blockchain, have become more popular as well, with one selling for $69 million in early March. The more one distrusts the financial system’s status quo, the more reasonable other high-risk investments appear.

The increasing desirability of previously fringe assets is not a coincidence, but rather a consequence of the abused trust that Cramer and men like him have fostered. Despite his exasperated condemnations of Reddit traders, it’s his career, and string of scandals, that made this moment possible. “In Cramer We Trust” no longer.

— Staff writer Harrison R. T. Ward can be reached at harrison.ward@thecrimson.com. Follow him on Twitter at @Hurrison_.