- the "genius" of academics,
- no-longer-toxic assets, and
- a response to self-aggrandizing critics.
Forget Making Money -- the Academics Say You Can't!
Posted at 1:54 p.m. EDT, March 31, 2009 I love a plan that is dissed right out of the chute by noted hedge fund managers Nouriel Roubini and Paul Krugman. These two big-swinging pros know the value of collateralized debt and stay close to the portfolios of the banks and recognize deterioration like the fabulous investors they are. They have a bead on Tim Geithner and know that neither he nor Larry Summers has a clue, as both of them toiled in academia before this. Hold it! Wait a second! It is Roubini and Krugman that are academics! It is Roubini and Krugman who are making definitive but theoretical short bets against ... well, let's see, today it is Apollo Global Management and Colony Capital, no doubt two no-nothing stupid managers who had better start reading The New York Times more and go back to classes at NYU. How dare they commit billions to a program that the professors and the columnists know is failed from the start? How dare these two hedge funds -- no doubt with unlimited firepower to actually figure out the worth of the assets -- take advantage of the wonderful leverage that the Fed is providing to buy them? Bunch of RUBES! How dare they rely on two decades of vulture investing in distressed fixed-income securities just like what would be for sale by the banks -- precisely the expertise of these two hedge funds? When I was at Harvard Law School I took some classes at the business school about option pricing. They all had the same theme: The options were all priced perfectly that you really couldn't make any money off them -- they were simple mental exercises. Boy, those professors were smart. They even wrote whole books about them! There was only one problem. At a phone booth located right before crossing the Charles River on the way from the Harvard Yard to the business school, every day I would make a little money trading the options in Amoco (now BP ( BP)), Motorola ( MOT), Texas Instruments ( TXN) and Time Inc. Pretty much every day. By the time I got to the classes, I felt guilty. I had clearly stolen the money from someone else. That's what I think of when I think of the nitwits at Colony and Apollo. They have only made billions and billions of dollars trading these distressed debts. I hope they feel guilty and downright foolish because Roubini and Krugman tell them they are wrong. Memo to Apollo and Colony: You silly devils you, give it up, don't participate, you just may make too much money in a way that Roubini and Krugman say you can't, and you will be doomed to have honest but ill-gotten gains that the intelligentsia say just can't happen. Maybe next time you will learn to follow those with no money who preach, instead of using your own killer instincts that have stood you so well after all these years. At the time of publication, Cramer was long BP.