A Real Phony

A quote from Former Federal Reserve Chairman Alan Greenspan, who centrally controlled and underpriced the most over-leveraged interest rate in the world for 18 years and is now cashing in like a reality TV celebrity

Sucking up to power, Timothy Geithner edition

You have probably heard a lot of noise about what was said about the housing bubble at Federal Reserve meetings in 2006. There is a quote from Timothy Geithner, then the NY Fed chief, that I think is quite revealing

The continuing saga of bank self-regulation and other fairy tales featuring Alan Greenspan

We continue to witness remarkable developments in the intersection of the related fields of economics, finance, ethics, law, and regulation. Each of these five fields ignores a sixth related field – white-collar criminology. The six fields share a renewed interest in trust

It’s Over

The classification of assets according to such dreary concoctions as “mid-cap growth,” comparative asset benchmarks is now over

Sidelights to 1994

LURING THE UNSOPHISTICATED into the stock market was considered a risk by Federal Reserve Chairman Alan Greenspan in 1994. So much so, that protecting the individual investor was a mandate of the Fed. (The Fed advertises and then omits new mandates faster than spring fashions. My favorite is the brainstorm of former Fed governor Frederic Mishkin in 2007: “The modern science of monetary policy proceeds under the assumption that the central bank’s purpose is to maximize the well-being of households in the economy; the objective function specifies exactly what should be maximized.”) On May 27, 1994, Greenspan told the Senate Banking Committee it was for this very reason that he – his FOMC – had started raising rates in February, 1994: “Lured by consistently high returns in capital markets, people exhibited increasingly a willingness to take on market risk by extending the maturity of their investments.” The People had shifted assets out of bank deposits and the like. The avuncular Fed chairman, by raising rates, was shepherding his sheep: “[S]ome of those buying the funds perhaps did not fully appreciate the exposure of their new investments to the usual fluctuations in bond and stock prices.”

Given this acknowledgement, the Fed later violated its Investor Protection Mandate when it did not raise margin requirements: a means to reduce credit to the stock market, but, as much so, a warning of forbearance to those who do “not fully appreciate the exposure of their new investments.” The Federal Reserve has absolute authority to raise margin requirements at any time. The Dow rose from 3,757 on May 27, 1994 to over 11,000 in early 2000; the Nasdaq from 733 to over 5,000. During these manic years, households served as sacrificial lambs to finance an economy that was funded by rising stock and bond prices

Is It 1994 Again?

Fred Sheehan argues that it is unlikely that Ben Bernanke will raise rates. He says either the market or a successor will do so. He adds that there are several similarities between current trends and those in 1994, a year when many institutions were left destitute. Historical analogies can help us imagine what might happen, but identification of differences should be noted too

The Curve in the Road

Bernanke (and Dudley) have been testifying that inflation is not an issue. But what signs and maps are they reading? Bernanke specifically invokes inflation expectations as being most important, and he contends they are low. They both note that the “output gap” (more on it later) is still high and that wage inflation is unlikely in a period of high unemployment. But, as Greenspan recently said, “The problem is, none of these indicators will tell you when inflation is about to take hold.”

The Economic Cycle Research Institute wrote what I think is a very powerful editorial about the problem with Fed policy and inflation. I will quote some of the more important paragraphs:

“Central bankers need to stop clinging to policy orthodoxy and pay attention to proven cyclical leading inflation indicators that can actually tell them when inflation is about to take hold. Otherwise, if a well-meaning Fed stimulates the economy for too long, it will let inflation and/or asset prices get out of control, fostering boom-bust cycles that keep long-term unemployment at elevated readings as each short boom ends with a bust that pushes the jobless rate back up.”

On Greenspan’s pandering and the example of Canada’s banking system

I was on Business News Network with Rob Cox of Reuters Breakingviews yesterday. We were talking to Howard Green about all things economic. The video clip is linked below. But let me say a few words about the discussion. One of the two major topics of discussion was financial regulation and Alan Greenspan. As a

Greenspan Panders for More Money

By Frederick Sheehan Former Federal Reserve Chairman Alan Greenspan has once again received space on the editorial pages of the Financial Times. He does not deserve, so shall not receive, a rebuttal. But, it is probably still worth a moment to remind readers of the interests he continues to serve. His intention, in "How Dodd-Frank

Mr. Greenspan takes it all back. His Old Time Religion was right after all.

By Michael Hudson It all seems so long ago! On October 23, 2008, Alan Greenspan choked up a mea culpa for his deregulatory policy as Federal Reserve Chairman. “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told

US monetary policy and the saving glut

Is the global saving glut to blame for global imbalances? This column argues that the role played by loose monetary policy from the US Federal Reserve should not be overlooked. The prolonged decline in long-term interest rates in the mid-2000s is largely to blame for the housing boom in the

They Missed the Money

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market"(Aucontrarian.com, 2009) The Federal Crisis Inquiry Commission (FCIC) had as much chance of satisfying the public as the Warren