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The Wizard Of Was

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.) […]

November 14th, 2008|Categories: Greenspan, Other Writings|Tags: , , , |Comments Off on The Wizard Of Was

It’s Uncle Sam’s Investment Club

U.S. government has become irreversibly involved in many businesses’ affairs

One day in the not-too distant past, seemingly eons ago, top executives of Lehman Brothers met with Federal Reserve and Treasury officials at the Federal Reserve offices in New York. At issue was what to do about Lehman. A top Lehman executive reportedly told government officials that Lehman had no idea of the amount of risk on their books in credit default swaps, and then said, “Neither do you.” It’s astonishing that a top official of a major investment bank would not know the amount of risk that the firm had on its books, but it simply reveals the state of affairs at the time. The Fed did not have any idea about the size or scope of the market, because Alan Greenspan had refused to regulate it even when advised to do so.

Even now, firms are still learning of the risk they have undertaken. This conversation may have been the basis for the decision by Treasury Secretary Hank Paulson to let Lehman file for bankruptcy. Paulson has said that Lehman did not have adequate collateral for a government loan. Based on subsequent events it probably is a decision that he would like back. […]

How Could Mr. Right Have Been So Wrong?

Amid the financial meltdown, former Fed chairman Alan Greenspan is a rock star no more

by The Oregonian Editorial Board

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. […]

Nightmare On Wall Street: Federal Bailout Probably Won’t Turn Things Around Anytime Soon

The fear and trepidation surrounding the financial markets came to realization in the month of September. The broad market fell 8.9 percent in the month, with the average U.S. equity mutual fund down 10.5 percent. This brings the market down 25.6 percent from its Oct. 9, 2007 high through Sept. 30, 2008. Credit markets seized up. Bank failures continued. Auto sales plummeted. Unemployment rose.

The Secretary of the Treasury, Hank Paulson, and the Chairman of the Federal Reserve, Ben Bernanke, told President Bush and Congress of the dark peril that faced the U.S. if a massive aid package was not adopted. The epiphany for Paulson came as he watched his trading screens flatline across global credit markets. The London Interbank Offered Rate soared as banks hoarded cash and declined to loan even to one another. Commercial paper activity, the lifeblood of industry, dried up and rates soared. America stood on the brink.

Paulson and Bernanke brought a massive recovery package to Congress that included granting extraordinary powers to the Secretary of the Treasury.

Alan Greenspan, in an interview with Maria Bartiromo on CNBC, volunteered himself to serve on a committee as yet unnamed, presumably as chair, to be given extraordinary powers over the economy. It is not known if anyone accepted his offer. […]

October 15th, 2008|Categories: Daily Journal of Commerce|Tags: , , , , , , |Comments Off on Nightmare On Wall Street: Federal Bailout Probably Won’t Turn Things Around Anytime Soon
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