There is no doubt that Alan Greenspan was a seminal figure in the financial history of the United States. Love him or hate him, this was the man at the controls of Fed policy.
Now, in his second life as a financial consultant and book author, expect the Greenspan style to switch from an ambiguous and incomprehensible financial-babblespeak to short, crisp sound bites and conversation starters as he pushes his book towards a Number 1 best seller.
The Age of Turbulence
Adventures in a New World
Book: Hardcover | 6.14 x 9.25in | 544 pages | ISBN 9781594201318 | 17 Sep 2007 | The Penguin Press | Adult | $35.00
Blaming Greenspan for the current mortgage debacle...
Mr. Greenspan won plaudits for achieving low inflation and unemployment with just two mild recessions during his tenure at the Fed. But more recently his record has taken some knocks. Some critics fault him for not doing more to restrain the stock bubble of the 1990s, and for responding to its eventual bursting with such low interest rates that housing prices subsequently soared.
This can be summed up simply: "a hero one day, a goat on another day." Greenspan's decisions may have led to unintended consequences that were amplified by subsequent events, but he was no more to blame for the current economic situation than any other individual who took advantage of the low interest rates to expand their customer's credit lines. Greenspan was not in charge of "fraud control" or "evildoing."
Wishing he would shut up...
Many people find that Greenspan's political opinions and projection of the country's financial future disturbing to their sensibilities. However, like all citizens, Greenspan is now free from government restrictions or self-imposed censorship and can speak about what is on his mind, regardless of the political consequences.
Mr. Greenspan, who calls himself a "lifelong libertarian Republican," writes that he advised the White House to veto some bills to curb "out-of-control" spending while the Republicans controlled Congress. He says President Bush's failure to do so "was a major mistake." Republicans in Congress, he writes, "swapped principle for power. They ended up with neither. They deserved to lose."
Here Greenspan is absolutely correct. There is no doubt that President Bush's Administration was composed of "Rockefeller Republicans" rather than what the nation thought it was getting, conservative "Reagan Republicans." The President himself is more of a northeastern "gentleman" politician than he is a "straight-talking cowboy." Even today, his fights occur behind closed doors and he appears to be afraid to take on the liberal left in an all-out confrontation --possibly on the grounds that such an attack does not appear to be "Presidential." In any event, what you see is not what you got. And it is not only the President, the Republicans in Congress and the Democrats in Congress seemed to be involved in an orgy of "special interest" spending that has severely impacted our economy.
He describes Bill Clinton as "a fellow information hound" with "a consistent, disciplined focus on long-term economic growth" whose relationship with Monica Lewinsky "made me feel disappointed and sad."
Again, Greenspan is correct. Unlike his wife, Bill Clinton is an extremely smart and knowledgeable politician. And by all accounts, an engaging larger-than-life personality who squandered his Presidency dealing with matters unrelated to "official business." While he is not a saint, he is also not the man demonized by the Republicans. If one were to look further at his Administration, one would find that most of the corruption, chaos and poor choice of appointments would fall directly on Hillary's doorstep.
“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.”
Unfortunately for the political spin-meisters, the truth is the truth. Here the United States was faced with a confluence of events: an evil dictator who murdered hundreds of thousands of his own subjects, a clearly demonstrated capability to gas thousands of people with chemical "weapons of mass destruction," an incursion into a sovereign country, and the possession of the world's second greatest oil supplies which were hungrily being "eyed" by IRAN and others who wanted to consolidate their control over the middle-east oil production. There is absolutely no doubt that the interests of the United States were clearly bound up in our ever-growing need to secure energy at a stable price, undiminished by conflict in far-off lands.
"US house prices are likely to fall significantly from their present levels, Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market."
Greenspan does not need any special talent to project how the housing market may perform. Coming off "record highs" only requires one to believe that there is some form of national trend line and that any correction can be considered as a "regression" or return to the mean value. That is, the prices will fall beyond the mean and then self-correct in the future. This is not so much a theoretical calculation than it is a historical observation.
“The real problems you are dealing with are criminal,” he says, pointing to abusive mortgage brokers who misrepresented the products they were selling. “It is called fraud – fraud or stealing. In this country it is a criminal offence.”
Here, Greenspan appears to be spinning in favor of the Wall Street hedge fund operators and financial engineers who precipitated the crisis by knowingly buying sub-prime loans and packaging them with derivatives that seemed like a form of "insurance;" with the combined package being confirmed by the ratings agencies as "investment grade" securities. Fund managers who should have known better then built pyramids on these debt-related securities by borrowing additional funds to lock in a guaranteed yield between the cost of their funds and the apparent yield of these "investment grade" loan pools. Significant money was made by the middlemen who packaged and sold the debt (both mortgage backed securities and collateralized debt obligations) to foreign investors and others who were looking for a secure investment with a high yield.
Greenspan has traditionally protected Wall Street, even to the point of being chided about the "Greenspan Put" which allowed the money boys to bail out of bad investments when the price dropped.
Value of his advice...
While I respect Alan Greenspan for his past government service, I have little faith in his abilities to influence the future as he is in the position, like any theoretical economist, of selling advice on the probabilities of the economic marketplace, not creating his own reality as he was able to do as Fed Chairman. However, for the movers, shakers and wannabes, he still has powerful political connections and may, from time-to-time, be the accidental recipient of inside information which can be used to his or his clients advantage.
However, like all fortune tellers, he can couch his predictions in financial-babble, known well to the public as "Greenspeak," and, like all economists, issue the usual "weasel word" warnings: "subject to existing conditions."
What is the Federal Reserve Likely To Do?
Using the same numbers that are available from the Fed (H.15 Report), we can clearly see that it would take a cut in the Federal Funds target rate from 60-basis points (5 Year)to 87-basis point (10 Year) to return to a neutral inflationary stance. Therefore, it is probable that the Fed will cut 25-basis points (1/4 percent) at least and 50-basis points (1/2 percent) at the most.
As with all things Fed and futuristic, the only accurate econometric prediction is "que sera, sera ("Whatever will be, will be.")
Que Sera, Sera,
Whatever will be, will be
The future's not ours, to see
Que Sera, Sera
What will be, will be.
(c) 1956 Jay Livingston (music) and Ray Evans (lyrics).
What can YOU do?
Like any other celebrity or accomplished person, consider their advice as being self-serving. Alan Greenspan is no different from any personality or politician who will maximize his own power, profits and prestige by convincing others that he knows "something special" which mere mortals cannot figure out on their own. In many regards, especially while selling his book, Greenspan will capitalize on his "Greenspan as God" aura as he convinces the public to buy his book and present and future clients that they need his advice to succeed in this complex world.
Consider that no person is correct 100% of the time when dealing with financial matters. They may have an opinion based on their education and past experiences, but it remains just a "better educated" guess than yours. There are no absolutes in finances that are conditioned by politics.
If you believe that the Federal Reserve will cut rates by 25- to 50-basis points or more, you may want to "lock in" some of the higher (5.25% or better) rates that will no longer be available after the cut. The prime rate is currently at 8.25% and will most likely be cut (this is not a certainty) after any rate drop. Those with "teaser rate" adjustable mortgages may want to take this opportunity to refinance your loan to a more acceptable and stable rate. It is wise to remember that this may be the first of a number of rate cuts (especially if this one is 25-basis points or 1/4-percent.)
I urge you to buy Greenspan's book. It promises to be an intriguing look at high finance at a national and international level.
As for Greenspan, the man, we should all wishing him "bon voyage and bon chance" in his new life after having faithfully served the citizens of the United States for many years.
A reminder from OneCitizenSpeaking.com: a large improvement can result from a small change…
The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. -- Marcus Aurelius
“Nullius in verba.”-- take nobody's word for it!
“Beware of false knowledge; it is more dangerous than ignorance.”-- George Bernard Shaw
“Progressive, liberal, Socialist, Marxist, Democratic Socialist -- they are all COMMUNISTS.”
“The key to fighting the craziness of the progressives is to hold them responsible for their actions, not their intentions.” – OCS "The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane." -- Marcus Aurelius “A people that elect corrupt politicians, imposters, thieves, and traitors are not victims... but accomplices” -- George Orwell “Fere libenter homines id quod volunt credunt." (The people gladly believe what they wish to.) ~Julius Caesar “Describing the problem is quite different from knowing the solution. Except in politics." ~ OCS
“The key to fighting the craziness of the progressives is to hold them responsible for their actions, not their intentions.” – OCS
"The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane." -- Marcus Aurelius
“A people that elect corrupt politicians, imposters, thieves, and traitors are not victims... but accomplices” -- George Orwell
“Fere libenter homines id quod volunt credunt." (The people gladly believe what they wish to.) ~Julius Caesar
“Describing the problem is quite different from knowing the solution. Except in politics." ~ OCS