Not a Tribute to Alan Greenspan, Who Thankfully Has Left the Stage
The OTHER Bubble Boy, Gone For Good!
By Amanda Balzastones
"There is the issue of how we portray ourselves to the public. And that's not only the issue of what we do but of how we say it -- how we write down the directive -- because this particular directive is going to be disaggregated in such detail that periods and misprints are going to be read as having great, great importance." -- Alan Greenspan. November 3, 1987
"It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously." -- Alan Greenspan. August 2002
August 15, 2006 -- New York (apj.us) -- I have had to lay into the Pepto Bismol almost all spring and summer while listening to the glorification, idolization and irrational exuberance over Alan "Greenscam's" 18½-year tenure as Chairman of our Federal Reserve Board.
I myself say goodbye and -- yes -- good riddance!
I can hear the idolaters now: "That Amanda is no friend of mine. How could she say such mean things about The Maestro, The Best Fed Chairman Ever, The Second Most Important Man in Washington?"
Who's the first, Dubya? Opinions like that are begging for a laugh track.
I think more appropriate names would be The Master of Illusion, Alan Frankenspan, or The Fed Chairman Who Hocked the American Consumer's Future as a Philosophical Experiment.
Anyone interested in Mr. Greenslime's background will find a cache of intellectual interests from the women he loved, like modern artist Joan Mitchell, or Media Madam Barbara Walters, or current journalist wife Andrea Mitchell Greenspan, to the mentors (Ayn Rand) he kept in his company, his political party preference (Republican), and of course, an upbringing by a father who was a stockbroker.
I bring forth these particular facts because I believe they create a swell picture of who has been in control of your and my financial well-being. This man had and still has an eye for strong, well-connected women, is convinced that the individual is the key to prosperity, and is well-versed in the inherent greed of the human condition. Over the years, he has shown us his ability to use human avarice to create, through experimental means, an economic state aligned with his very well developed personal agenda: the undermining of the Federal Reserve through laissez-faire policy, thereby creating a chaos that will promote the return of the gold standard.
Greenphlegm masterfully used his abilities to conjure up an economic American portrait that embraces the individual (consumer) as an insatiable, irrational capitalistic economic motivator, whom through the power of democracy and personal freedoms, can create an infinite amount of wealth for themselves. If monetary policy becomes more laissez-faire and less constraining and thereby addresses and counts on the human's inherent greed, or as Mr. Greensputum puts it, "infectious greed" coupled with the typical American's determination to live life with little or no self-sacrifice, then many will get richer and prove that it is the individual's ability that controls the destiny of prosperity.
And we know that without some sort of economic program with some identifiable structure from which we can manage our economic state, we could eventually have economic chaos.
"Yeah, so what?" you might say. Well, bear with me.
When monetary policy (and this is very much in the Austrian camp of economics for those of you who are curious) is aligned with wealth creation though appreciation of asset value, as opposed to actual income and earnings, then the "wealth" we are accumulating is "on paper" and not actual money in the bank. As Mr. Greensnot has artfully created each bubble of different asset classes over the years, the American consumer who was able to participate in each bubble (we'll address this thought in a bit) sees the asset appreciate on paper and begins borrowing and spending as if he or she had earned this wealth and the money was in the bank. Now the money in the bank becomes borrowed money, or the new asset purchased has fractional equity and the rest is borrowed.
And because of the infectious greed in most of us, we continue this behavior until the proverbial asset bubble bursts.
You remember the technology/stock market bubble and its bursting in 2000. And, of course, we are all waiting to see which pundit is correct about the direction of the housing bubble (or pimple, however you may see it). But do you remember the result of the mini housing bubble in the mid 1980's and when it burst? It was a major catalyst of the most excruciating savings and loan failure this country had seen since The Great Depression.
It's not that just the greediest of the greedy get hurt when a bubble bursts. If those who participated in the bubble behavior reduce their spending due to paper wealth deflation and leftover debt from unscrupulous borrowing, then the neediest of the needy, who were not able to participate in an asset class value appreciation, and whose labor is at the low end of the goods and services industries feel the pinch, too. And they are already pinched.
Let me show you a couple of more little facts about Mr. Greenscourge. Remarkably, in 1983 (at the age of 57, when he was serving in the Reagan Administration), Mr. Greenliar led the commission on Social Security, the largest entitlement program ever created by our government -- and under his leadership this commission almost doubled the Social Security tax levied on all workers. Funny thing -- this was when the Baby Boomers were in the early midst of their highest wage-earning years. Of course, all those on the commission never have to pay those taxes from their wages, but they were surely realizing that all those working family schnooks on the outside would have to pay up. Also, Mr. Greensmarm was only 5 years away from his first age of eligibility, 62, for whatever benefits he accrued from his private sector wages -- not that he needed it.
I'm sure he donated to charity and the arts whatever he collected from his entitlement, arent you?
The really interesting part of this Social Security move was that it began creating a large surplus in the Social Security Trust Fund. This in turn allowed the government to borrow from the trust as needed, which it started doing immediately. This "borrowing" does not show up in the National Debt and, therefore, bypasses deficit reporting. Do you think that it helped the Reagan administration cover up deficits that may have really been there due to the administration's tax cuts and policies? And gee, this practice is ongoing today.
On a personal note, I became very suspicious of Mr. Greenstench in 1998 as I watched the debt of Russia and some of her neighbors become worthless, which led to the overnight meltdown of Long Term Capital Management. You remember LTCM, don't you? If you don't, fire up a Google search and strap in for a bumpy ride. LTCM took $800 million from 80 investors, made themselves wads of money based on the advice of a Nobel Prize winning economic duo who assisted their Wall Street trader in running the hedge fund. Right before the Russian devaluation, one of those mental giants decided to return some of the cash to the investors and up their leverage from a 16-to-1 asset-to-equity ratio (very edgy) to a very speculative 25-to-1. By the time the Russian crises got through with them, it was quickly 45-to-1 -- and moving up.
Here's how it went down with the involvement of Mr Greencrony. In response to the first event, which had culminated over a period of months and as the LTCM event was materializing, Mr. Greenslime eased the prime interest rate 3 times, dropping it a total of .75% during a very short period in September 1998, at a time when our metaphoric "economic train" was traveling on positive tracks at about 100 mph. This easing, as hindsight showed us in the rest of 1998 and 1999, sped up that train to at least 150 mph.
By the way, Mr. Greenplan and his cronies had been lecturing Russia and assorted Asian countries about the evils of crony capitalism and the shameful practice of bailing out rich cronies and letting lesser people suffer the result. What's more, they preached that they should be letting their weaker institutions fail so that the stronger survive and pay in the short term the price of suffering, which they deserved from their sins, so that the majority benefit in the long term. This turned out to be serious blah-blah when the LTCM crises went into full blow.
Greensham and company, posing all the while as American economic moralists, had the audacity to do exactly what they had said should never be done. In spite of a very appropriate and well-thought-out offer from the private sector under the quick eye of Mr. Warren Buffett to buy out LTCM privately at a reasonable fraction of the initial seed money, our illustrious economic preachers and their leader Rev. Greedspan had already let LTCM know that they were collecting Wall Street giants together for collaboration with the Fed to bail them out.
The result was that LTCM quickly turned down Mr. Buffett and kissed the Greensatan group right on the mouth.
Can you spell "m-o-r-a-l s-e-l-l-o-u-t"?
And so, you see, the stockbroker's son made good for Wall Street and his still growing stock bubble by bailing out their rich cronies and saving the speeding market train. It's a case study in cronyism at its best and hypocrisy at its most odious application.
Maybe now it is easier to see how this monetary policy we have been under for almost a generation walked us right into 2000 market bubble. Can you picture the 100mph market train running into the wall of "Oh No It's Over"? It wasn't pretty, although the media today called it short-lived and shows us charts of how stable our economic growth has been thanks to Mr. Greenstack.
So, now -- where are we? The real answer is, who knows? But let's just check out a couple of items.
The stock market, after 6 years, is not back to its highs of 2000, which virtually throws out the window the "rule of 72." (That is the rule that one uses wherein you divide your average annual % return into 72 to find out how many years it will take to double your money. Example: 12% average annual return doubles your money in about 6 years.)
We have another bubble in real estate that has blown up to controversial levels and is pending some sort of deflation if not a loud pop.
We have American consumers avoiding good sense and self sacrifice like these qualities were strains of bird flu and borrowing and spending based on their "on paper" wealth versus their earned wage deposits in the bank.
We have climbing deficits due to the same mindset in the government that the country is rich and can borrow infinitely with no effect.
By the way, forget this stuff about revenues increasing over last year. So what? They are still not back to the levels of 2000. Check out our spending lately?
We have a massive moral sellout in all parts of our regulatory process and a sense among consumers, hedge funds, and you name it that irresponsible behavior is okay because there will always be something or someone to bail out any failure.
And we have a growing group of Neo-objectivists (those who worship the philosophy of Ayn Rand) that Mr. Greensnout followed the outline of Atlas Shrugged and has indeed spent his career undermining the Fed (versus the copper industry portrayed in the Rand novel) in order to create chaos and return this country to the gold standard.
There is also a growing group that has never heard of Ayn Rand but sees the chaos and shudders.
Of course, we can all hold our collective breath and hope that the recently appointed Fed chairman, Ben Bernanke, ignores the whining of the Bush Administration and is clear on the direction to preserve economic health in our country by strong analytical strategy and no personal or political agendas in his influence. He seems harder-handed, and not of the ilk to finesse his syntax with ambiguity. I find it refreshing, but the markets seem spooked with him. I believe the markets should have been spooked by his predecessor. It is obvious that it is prior leadership that will bring us this slowdown that may be further exacerbated by the continuing escalation of the Middle East conflicts due to the consistently wrong policies of our very own Bushie, Dickie, and Condie. If you feel as if you are witnessing economic and political fiascos in this country based on this perverted version of the Three Stooges, you are correct.
Well, the best part of all of this is that not long ago Queen Elizabeth bestowed on Sir Greentrash an honorary knighthood, which according to British custom now allows him to lead his sheep across the London Bridge and be hung by a silken rope should he ever be sentenced to death.
What do you think that silken rope marked for Mr. Greenspan will go for on eBay?
AMANDA BALZASTONES is a New York City-based senior executive with one the nation's largest banking and investment firms.
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