Lawrence Carrel is well-known to IndexUniverse.com readers. Besides contributing articles and columns to the site, his work has appeared in the monthly Exchange-Traded Funds Report. Carrel has also served as a senior writer for TheStreet.com, and before that, spent seven years at SmartMoney.com where he created two weekly columns, "ETF Focus" and "Under the Radar."

Last fall, he authored a book published by John Wiley & Sons Inc., "ETFs for the Long Run: What They Are, How They Work, and Simple Strategies for Successful Long-Term Investing."

IndexUniverse.com's Managing Editor Murray Coleman recently talked to Carrel about his thoughts on developments in the ETF marketplace.

IU: You've been critical of your former boss, Jim Cramer, and his stock picking prowess on your blog (see here), haven't you?

Carrel:  Not in general. But a segment he did recently about the ProShares Ultrashort Financials (NYSE: SKF) pretty much came out saying that it was horrible for investors and shouldn't be allowed on the market. I thought that was a little overblown considering he'd been telling people to stick with stocks all the way down. In fact, he was telling his audience to hold onto Bear Stearns the week before the whole thing went under. So I've really got to question who's he to say that SKF should be banned? The whole point is that nobody is claiming that SKF is a long-term investment. What's wrong with making an investment instrument for traders? But he was nice to me when I was there. It's just that I felt he was being a bit extreme.

IU:  How do you view ETNs given the current credit situation of many of the underlying issuers?

Carrel: They're much riskier than many people assumed they were. When they first came out, people were assuming that ETNs would provide better index tracking. But nobody figured that big banks issuing those notes would actually face the threat of going under. Although that seems unlikely, the credit risk attached to ETNs just can't be as easily dismissed anymore. But I believe that ETNs are good investment instruments. The big problem is that the government has stepped in and that has changed the whole landscape. At this point,  investors need to be hyper-aware of what they're buying. They've got to monitor how safe a bank is and they can't just look at what an ETN tracks. And maybe when warning signs show up about a sponsor, in this environment, the best course of action is for investors just to get out.

IU: How do you feel about leveraged and inverse ETFs?

Carrel: They're a great way to make money very quickly or lose money very quickly. You've got to dig into the specifics and do some more homework. You've got to be very aware of how these things move. Leverage can move against you very quickly. If you can't watch these very closely, these aren't instruments to play around with. They're not buy and hold types of products. Right now, they're one of the most popular instruments on the market. So they've helped investors in a lot of ways by giving people more ways to play markets.

IU: How do you view commodities ETFs?

Carrel: Investors again need to be very clear of what an ETF or ETN is buying. For example, look at the United States Oil ETF (NYSE: USO). It's holding the forward-month contracts. So this isn't an investment vehicle aimed at tracking spot oil prices. For example, on February 13, the futures contract from March jumped 10%. At the same time, the futures contract for April dropped 0.5%. So USO fell because it's holding the April contract. It had already moved to the next month's contract since the March contract was due to expire soon.

IU:  In your book, you write that ETFs are poised to become the mutual funds of the 21^st Century, don't you?

Carrel:  Yes, ETFs will be one of the few financial instruments that come out of this current crisis smelling good. Transparency has become a big buzz word among investors. And they see how lack of transparency in hedge funds and mutual funds can hurt them. And liquidity, another benefit of ETFs, are becoming more of a buzz word as well. Investors couldn't get out of hedge funds, for example, until most of the damage had been done during this latest economic downturn. The search for true alpha is the promise of mutual fund managers. But this financial crises has highlighted how elusive that search really is.

IU: Do you think active ETFs will become popular?

Carrel: They've got potential to become very popular. Since alpha is so elusive, you're going to probably see the same level of frustration with active ETFs as active mutual funds where most managers underperform their indexes. But for the industry, there are only so many index funds you can create. So in order to grow, ETF sponsors are undoubtedly going to keep bringing out more active ETFs. But is that better for investors? Probably not since the biggest benefits of ETFs -- cheaper prices, transparency and tax efficiency -- are diminished by actively managed ETFs.