The three little pigs and the big bad wolf (a fable)
Published in Brainstorm Northwest, November 2008
Once upon a time there was a happy community. In the community there lived a Wizard. Some called him the Maestro, others called him an Oracle. In any event, he was called on from time to time to make Big decisions. These decisions involved the land in which he and the little people lived. The Big decisions usually involved money but sometimes they involved how the money was priced, who got the money, and how those who received the money used it. Because these decisions were so Big, sooner or later they affected everyone in the land — not always for the better.
As it happened, the land fell on hard times because decisions made by the Wizard were wrong. Businesses were failing, and people were losing their jobs, savings and retirement accounts. The prices of companies were falling along with the price of just about everything else, except food and energy. (At an earlier time, the Wizard had said the food and energy didn’t count, so don’t pay attention to them.) […]
Amid the financial meltdown, former Fed chairman Alan Greenspan is a rock star no more
He was a legend, the “maestro,” the man who knew how to pull the levers that others couldn’t even see, the man who uttered the market-crippling phrase “irrational exuberance,” who courted celebrity and married the television news reporter, whose absolute faith in free markets led many to declare him the greatest chairman of the Federal Reserve the country had ever known.
Now, with markets crashing and wealth evaporating around the world, he is regarded as the man who steered blindly into a storm, tacking when he should have jibed.
“Man, I loved Alan Greenspan,” lamented Portland economist and business consultant Bill Conerly this month on his Businomics blog, “but it turns out that he is to blame for today’s problems.”
Conerly says Greenspan and many others failed to see that the Fed’s policy of keeping interest rates low was fueling a housing bubble — a bubble that popped and has plunged the world into recession. […]
Mr. Greenspan replied to those criticisms as follows:
I am puzzled why the remarkably similar housing bubbles that emerged in more than two dozen countries between 2001 and 2006 are not seen to have a common cause. The dramatic fall in real long term interest rates statistically explains, and is the most likely major cause of, real estate capitalization rates that declined and converged across the globe. By 2006, long term interest rates for all developed and major developing economies declined to single digits, I believe for the first time ever. […]
G.M. Pacy with Union Sets Off a Rally
by THE ASSOCIATED PRESS
Stocks rose soundly yesterday after word that General Motors had a tentative contract agreement with the United Automobile Workers and that Bear Stearns might sell a share in the company.
G.M., one of the 30 stocks that makes up the Dow Jones industrial average, led the market higher from the outset with news that a tentative pact that ended a two-day strike could allow the company to shed some of its burdensome health care costs.
Rumors that Bear Stearns would sell a stake took on new urgency in the final hour of trading with a report that the billionaire investor Warren E. Buffett was a potential suitor.
“Certainly it’s good to have problems that have been overhanging Bear Stearns off the table, if that can be done. That should help the financials,” said William D. Rutherford, president of Rutherford Investment Management in Portland, Ore., alluding to the recent failure of two Bear Stearns hedge funds.
The Dow Jones industrial average jumped 99.50 points, or 0.72 percent, at 13,878.15. The Standard & Poor’s 500-stock index advanced 8.21 points, or 0.54 percent, to 1,525.42, and the Nasdaq composite index increased 15.58 points, or 0.58 percent, to 2,699.03. […]