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Whatever Happened To Personal Responsibility ?

by @ 4:53 pm on March 13, 2009. Filed under Economics, Personal Finance, Politics

I’m involved in a fairly interesting discussion over at Donklephant in the comment threat to Justin Gardner’s post about the Cramer vs. Stewart showdown last night.

The basic question is this — to what extent are individual investors responsible for their depleted portfolios if they weren’t following basic smart investing rules ?

Here’s my basic point:

[T]here’s something fundamentally wrong with putting all the blame for what happened to Stewart’s mother and other investors on Cramer or CNBC in general. If you’re going to invest in the market you have the responsibility to educate yourself and relying on one person, or even one network, is anything put responsible. I’d also note that anyone who was spending the last decade buying individual stocks with money that they couldn’t afford to lose was a fool by definition.

Update: Econ4U makes a similar point:

The stock market can be a dangerous place. That’s why it is important to diversify your assets and not leverage too much of your family’s income.  And just like you don’t invest your kids’ college fund based on Terry Bradshaw’s Sunday morning football picks, don’t treat financial television “experts” as if they were preaching the gospel.

As does Megan McArdle:

I am not a fan of financial cable news (Bloomberg usually excepted).  I think Jim Cramer should be illegal.  Anyone who invests money based on one of these networks, or Wall Street Week, should seriously consider making themselves a ward of the court.  Anyone in the business who goes on one of those shows is talking their book.  If anyone has a good way to make money above and beyond broad, boring strategies like stock indices or bond funds, will not tell you about it.

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3 Responses to “Whatever Happened To Personal Responsibility ?”

  1. Personal responsibility is alive and well. Always has been.

    Stewart’s points was where was the business media in all of this? Why weren’t they checking the CEOs’ stories? Don’t they have a responsibility to illuminate the truth? And he didn’t put all the blame on the media, but Cramer was on last night and that clip from 2006 where he essentially admitted that the market was a big scam was what Stewart was pivoting off of. So that may have been why it seemed like he was placing more blame on the media than seemed appropriate, but I definitely think they played an important and tragic role in all of this.

    Also, Stewart was talking very specifically about long term investors and how they got screwed b/c the market dropped 40% b/c of the confluence of events. And how, when you have to take a 30% penalty to draw that money out of a 401(k), is it about personal responsibility? I agree that short term, single stock investors do bear their own burden, but long termers are a different story.

  2. Justin,

    Yes, the media has a responsibility. But, so do individuals who choose to invest. Anyone who was following Jim Cramer’s advice and investing with money they couldn’t afford to lose was a fool, plain and simple.

    Where was Stewart talking about “long term investors” ? His mother is in her 70s — by definition she’s not a “long term” investor and there’s no reason someone who’s reached that age should still have significant money in stocks, unless they can afford to lose it.

    And what’s the relevance of the 30% penalty ? Remember, it’s a 30% tax penalty that that only comes into play if you withdraw money from a 401(k) or IRA before you reach retirement age. Now, personally, I don’t think the 30% penalty should exist, but it does partly because the entire 401(k)/IRA scheme is based on the idea of deferring taxes in the present day in order to encourage investment for the future. If someone takes tax-deferred money out early, then it’s only logical that they’ll have to pay taxes on it.

  3. Balthar says:

    Cramer lies a lot, but EconF-U lies more in the post you reference about Cramer’s lies:

    Everything the post says about Cramer recommending action in Apple and Bear Stearns is a lie. Completely unrelated to the objective truth of what Cramer said or did. He never told AAPL holders to get out of their stock, and he wasn’t even referring to Bear Stearns’ common stock in the clip EconF-U links.

    Cramer says a LOT of stupid things, but EconF-U really screws the truth pooch with their mendacious post.

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