Financial Skeptic Bulletin, 2006

[Jan 25, 2006] Was former Fed Chairman a clown wearing too big shooes ?

January 25, 2006 | CrossingWallStreet.com

Portsmouth Herald News:

Academician has big shoes to fill as Fed Reserve head

San Diego Union Tribune:

Big shoes to fill

U.S. News and World Report:

Following the legend of Greenspan, Bernanke certainly has big shoes to fill.

St. Petersburg Times:

One focus is the transition at the Federal Reserve Board, where Alan Greenspan is on his way out as chairman and Ben Bernanke is stepping into those extra-large shoes.

Black Enterprise:

Big Shoes to Fill

The Daily Yomiuri

It will not be easy for Bernanke, who is tasked with overcoming domestic and external problems that could short-circuit the currently sound U.S. economy and to fill the big shoes of Greenspan, who has won international recognition for his economic policies.

NPR:

In terms of his role as a political player, analysts agree he has some big shoes to fill.

Investors Business Daily

Bernanke knows he has big shoes to fill.

Smart Money:

You'd think Alan Greenspan shows up to work in a clown costume with all the talk about the next Federal Reserve chairman having big shoes to fill.

Greenspan's Client List Needs Someone Like Me by Caroline Baum

Jan. 18, 2009  | Bloomberg

Mr. Alan Greenspan Greenspan Associates
1133 Connecticut Avenue NW Washington, DC 20500

Dear Mr. Greenspan:

I was somewhat surprised to read that you had been hired as an adviser to John Paulson, the hedge fund manager who made a killing last year betting against the mess you made. The irony is really rich: Paying someone whose policy mistakes and missteps were the source of your success! I'm sure it will be a productive working relationship for everyone involved.

What got my wheels turning, though, was re-reading your comments about your ``Rule of One,'' as I call it. You have said that you would consult with only one client in each industry.

So far, your roster includes one bank (Deutsche Bank AG), one bond-fund manager (Pimco), and now one hedge fund. I'm sure there's some overlap in what these firms do, but my intent here isn't to quibble about details.

If I understand you correctly -- you speak much more clearly than you did when you were Fed chairman, now that you're getting paid a bundle per word -- you still have an opening for a media company. So I'd like to propose what I think could be a mutually beneficial relationship between you and, yes, me.

The benefits to you should be immediately apparent.

1. Buying Access

With each announcement of your exclusive consulting relationship with a client, the chatter is that these firms are buying ``access'': access to your institutional knowledge of the Fed; access to your Rolodex; access to any inside information you might get from policy makers in the U.S. and overseas.

The way I see it, it wouldn't be a bad idea for you to buy access -- from me. Lots of politicians see my column; maybe even a few who are running for president. I might be able to put in a good word for you that would give you a shot at Treasury secretary, an opportunity lost when Jimmy Carter defeated Jerry Ford in 1976.

Running the mint isn't nearly as glamorous as controlling the printing press, but at least it keeps you in the public eye (not that you ever left it).

2. Keep Your Friends Close, And Your Enemies Closer

Let's face it: No one has been a bigger thorn in your side than yours truly. I started my journalism career a few months before you landed at the Fed, and we've been joined at the hip ever since.

If I were on your payroll, you can be pretty sure I'd be talking you up rather than putting you down. I mean, it wasn't until Bill Gross hired you that he stopped trashing you. And you didn't even have to pay him to change his tune!

If you put me on retainer, you'll be surprised how easily I can be persuaded to see economic history in a different light.

Remember how you denied there could be a housing bubble, only belatedly acknowledging some ``froth'' in certain local markets? I've already forgotten you said that, along with your lament on how homeowners would have done better with adjustable- rate mortgages.

Or how about that ridiculously low federal funds rate that overstayed its usefulness for years, not months? I think I could make an argument, based on a ``risk-management'' approach, that it was necessary to ward off deflation.

In other words, Mr. Greenspan, money talks -- or in this case, money would encourage me to talk less, if you know what I mean.

3. Playing Cyrano to Your Christian

Just as Christian de Neuvillette used Cyrano de Bergerac's words to woo Roxane, you, sir, could use a bit more dash when it comes to preserving or, at this point, resuscitating your legacy.

No one ever accused me of being dull or uninspired. And I've always had a hankering to play Cyrano, sucker that I am for that swashbuckling, romantic stuff.

``I draw my sword and raise it high.'' ``Let me choose my rhymes.'' ``Then, as I end the refrain, thrust home!'' Oh, it will be grand. Together we can win their hearts!

4. A Better Crystal Ball

This may be a sore subject with you, but your forecasting acumen hasn't been the best. Your visibility on bubbles has been close to zero. You were late to see recession in both 1990 and 2001. Your rationalizations for your forecasts have been pretty lame as well.

Money manager Bill Fleckenstein sets your record straight in a just-published book, which isn't likely to be a coffee-table fixture in your household.

If you saddle up with me, you can get rid of all those arcane manufacturing ratios and obscure indicators you used to pull out of a hat to justify a policy action. You can do better watching two rates -- the overnight rate that the Fed sets and the long-term rate determined by the market -- than you can with the 18,500 indicators you reportedly track in the bathtub.

I'd like to thank you in advance for considering my offer. I'm ready to proceed with negotiations as soon as I hear back from you.

Very truly yours,

Caroline A. Baum

 "Alan Greenspan as a New Incarnation of Gregory Rasputin"

Abstract of Thesis Presented to the Graduate School of the University of Transvaal in Partial Fulfillment of the Requirements for the Degree of Master of Fine Arts in Political Dance

Grigory Rasputin was a Russian religious adventurist who is perceived as having influenced the later days of the Russian Emperor Nicholas II, his wife Alexandra, and their only son the  Alexei. See The Rasputin File by Edvard Radzinsky for details. The key component of his power was his ability to influence the imperial family. It was Tsarina Alexandra who was the key to the Rasputin influence :

The Tsarina's anxious concern for her son's illness led her to embrace Rasputin, a debauched 'holy man' who proved able to stem Alexis' loss of blood (it has been suggested through hypnosis).

Already unpopular at court - where she firmly held sway over her husband - Alexandra's unswerving loyalty to Rasputin (whom she believed had been sent by God to save the Russian throne) led her to continually excuse his notorious excesses, and further damaged her reputation both at court and in the public at large (whom she gave every indication of despising).

It has been argued that Rasputin helped to discredit the tsarist government, leading to the fall of the Romanov dynasty. While contemporary opinions saw Rasputin as a debauched religious charlatan with insatiable sexual appetite and tremendous luster for power and influence a lot of contemporaries saw an influential religious figure, a both wizard with the ability of intuitively understand world events and find the right course of actions.  There are some subtle analogies between Rasputin and Greenspan. We have found seven most prominent areas of similarity:

1. Radicalism, fringe views. Rasputin was religious radical with questionable agenda and almost blind trust from the large part of Russian aristocracy  as well as tsar family,  but who simultaneously created the level of corruption which greatly contributed to the Imperial Russia demise.  Greenspan is a market fundamentalist with questionable agenda (strong allergy for regulation and zeal in dismantling New Deal safeguards) as well as tremendous lust for power and prestige; the man who enjoyed almost blind trust from the Wall Street moguls, Congress and a large part of academic community.

   There is no question that in monetary policy Greenspan proved to be a dangerous radical: overzelous statist insteal of libertarian as he often tretends to be.  Doug Nolan noted this sad fact in his column The Greenspan Era Lessons to be Learned 

   Truth be told, Mr. Greenspan is a monetary policy radical. He presided over the greatest expansion of speculative finance in history, including a Trillion dollar hedge fund community, bloated Wall Street firm balance sheets approaching $2 Trillion, a $3.3 Trillion repo market, and a global derivatives market surpassing an unfathomable $220 Trillion. During the late-nineties, when leveraged speculation was heavily infiltrating the financial system, he became the leading proponent of the "New Economy." He became a powerful advocate of derivatives and Wall Street finance, all the time avoiding any discussion of the impact these new financial instruments and practices were having on Credit growth, marketplace risk perceptions, speculation, asset prices and the underlying structure of the economy.

   Like Rasputin intrigues, his monetary policy contributed to the excessive leverage and derivative boom that was instrumental in rapid expansion of financial sector and reckless speculation. That created of current troubles for Wall Street firms (especially New York banks which were favored by Greenspan due to his past as a bank lobbyist)), the troubles that might  eventually lead to collapse of once mighty banks and threatened that status of the dollar as a reserve currency.  The question whether the most corrupt players avoid lynching as happened in Russia is still open.
   

2. "Greed is good" as a more limited version of "Sin is purifying" motto.  If you think about Rasputin's motto "sin is purifying" and his sexual excesses that is not that far from "greed is good"  and monetary excesses which were typical during Greenspan tenure. The mask of libertarian along with flexibility in his own convictions (as was demostrated in his support of Bush tax cut) and tremendous political survival skills permitted both to adapt it to the needs of those in power and prosper on the corrupt environment they created. Similary to Greenspan libertarism, mysticism was a key that open for Rasputin the door to high society, the universal key opener which provided undeniable advantages for political ladder climbers during Reagan years. The battle cry was dismantling of the New Deal checks and balances for the benefit of the most greedy and reckless part of Wall Street. The most apt demonstration was neutering of Glass-Steagall Act.  As FT commented there are big differences between commercial and investment banks with the latter being far more dangerous animals, especially as they grow in size:

   Commercial and retail bankers are like battery hens. You put them in a small cubicle, pressurise them with tough sales targets but provide a decent salary, and they will produce a steady stream of returns. Most are conservative, somewhat harassed souls, who seldom think to bite the hand that feeds them.

   An investment bank is more like a zoo, full of bizarre, prideful and sometimes dangerous animals. A zookeeper who pushes them around, or issues orders, is asking to have an arm bitten off. Instead, the job is to keep the animals in their cages, so they do not savage the paying customers, while understanding their individual behaviour patterns. What does it mean, for example, when a derivative trader refuses to take a holiday?

3. Substance abuse. While Rasputin was the traditional alcoholic which enjoyed wild orgies, Greenspan personal inclinations were limited to modest love of cocktail parties and he was more of a financial bartender: irresponsible regulator who instead of removing punch bowl was serving drunks booze after booze to keep them from falling on the floor.
   
4. Tremendous, all-encompassing lust for power and status. Like Rasputin became a new, bizarre center of power in Imperial Russia, Greenspan also gradually acquired and tightly gripped to the role that entails tremendous political power. Tremendously autocratic he partially derived his  political power from his ability to raise or lower the interest rates before the elections and thus make or break the candidates from the party in power.  The mere threat of such actions was often enough for confirmation by presidents who definitely would prefer somebody else at this position.  So quid-pro-quo arrangements extending Greenspan's tenure were something similar to J. Edgar Hoover  ability to survive under so many presidents. It is because of Hoover's long and controversial reign that FBI directors are now limited to 10-year terms. I do not see why Fed Chairman position should be different: Greenspan was enough of the warning sign to prevent this from happening again.

   Sir Alan convincingly  demonstrated during his long carrier that he can do whatever it takes to stay in power, principles be damned. It has been reported that Ayn Rand once remarked at a party in the late fifties about Greenspan, "Oh, Alan is so brilliant, but he's such a social climber." Seems she pegged him rather well, for Mr. Greenspan certainly became quite skilled in the climbing game that makes up Wall Street and Washington.

   In FSO Editorials Greenspan's Choice Scylla or Charybdis (04-28-2004)   Nelson Hultberg  noted that Greenspan has tremendous lust for power (read also Bob Woodward's Maestro to learn of Greenspan's love of status):

   Power-luster. There’s only one reason a central deified by economists and Wall Street strategists. He planner seeks to do whatever he wishes, to willfully obfuscate his aims, deliberately deceive questioners and operate unaccountably: because he’s a power-luster. That was Greenspan. The idolatry he received from Wall Street, academia, Congress and the White House only emboldened him to secure and exercise still more political power than he already possessed when he began. Consider the near-disappearance of intellectual independence under his reign.

   It is interesting to note that retired Greenspan still tries to remain in spotlight and became a consultant several firms including one which explicitly benefited from subprime bubble.
   

5. Refined hypocrisy, ability to use fuzzy language to mask intensions and avoid critique. Like in case of Rasputin, much of the debate around Greenspan's legacy has revolved around the matter of hypocrisy, of a man preaching laissez-faire who repeatedly intervened in the market to save the wealthiest players. As for his religious zeal as an accolade of obscure teachings of Ann Rand (Objectivism) he has come under criticism from Harry Binswanger, who believes his actions while at work for the Federal Reserve and his publicly expressed opinions on other issues show abandonment of Objectivist and free market principles. It is interesting to note that Fed position is incompatible with Rand teachings and is completely incompatible with any sincere libertarian beliefs. For most people the term libertarian evokes an image of a scraggly misfit living in the woods with his gun collection, a few marijuana plants, some dog-eared Ayn Rand titles, and a battered pickup truck plastered with bumper stickers reading "Taxes = Theft" and "FDR Was A Pinko."

   "Greenspan speak" was probably more like a kind of "The King New dress", the attempt to conceal the emptiness of content.  As XXX noted in The talented Mr. Greenspan

   The secret of his success is his ability to match the arcane but ultimately content-free arcane jargon of the alchemist to the gullibility of the customers. No one wants to admit that they don't know what he's talking about.

   Greenspan describes himself as a "lifelong libertarian Republican" but this a very questionable statement as his actions are difficult to understand for someone who believe in small government, and, especially, in fiscal responsibility.   In his position of Fed Chairman he was more like a member of Politburo, unelected very powerful official that citizens cannot control. On March 3, 2005, Democratic Senate Minority Leader Harry Reid attacked Greenspan as "one of the biggest political hacks we have here in Washington" and criticized him for supporting Bush's 2001 tax cut plan. While this particular metamorphoses was more dictated by the desire to extend his tenure for another four years, it is true that many Easy Al actions are more explainable by hypothesis that he was a Wall Street agent in Fed then by the hypothesis that he was a "lifelong Republican". For this reason economist Paul Krugman  was not correct by sharply criticized  Greenspan as a "three-card maestro" with a "lack of sincerity" who, "by repeatedly shilling for whatever the Bush administration wants, has betrayed the trust placed in the Fed chairman." In addition to being far from  a polite discourse this hypotheses ignores the influence of tremendous desire to survive on Chairmen actions.
   

6. High IQ, ability to read people, tremendous political abilities along with lack of education. Few people really grasp of how brilliant a politician and truly connected a player Greenspan actually was. In terms of subtle calculation, ego manipulation and natural alignment to power, he really was a "Maestro" of the highest order. But as for economic education, despite his Ph.D from NYC University, Greenspan looks like at best is a semi-educated economist and "one of the worst forecaster who occupied Fed chair": 

   Despite all media hype Greenspan was one of the worst forecaster who occupied Fed chair. His forecasting record before becoming Feb chairman was equally dismal. Most of his prognosis turn to be so false that the best strategy of using Greenspan predictions is to use then as a contrarian indicator. As the Associated Press reported  Jan 05, 2008:

   Critics contend that former Federal Reserve chairman Alan Greenspan pursued interest-rate policies that led to a speculative housing bubble while failing to use the Fed’s regulatory powers to crack down on abusive mortgage lending practices.

   Here are comments made by Greenspan on housing and mortgages:

   • February 2004: “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” Greenspan said in a speech praising the benefits of adjustable-rate mortgages.
     
   • October 2004: “While local economies may experience significant price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity,” Greenspan said, playing down the threat of a national housing bubble.
     
   • May 2005: Greenspan said in a speech that he doubted there was a national housing bubble similar to the one in the stock market. But he said there were a “lot of local bubbles” in housing, and he called the pace of housing price increases unsustainable.
     
   • July 2005: “A decline in the national housing price level would need to be substantial to trigger a significant rise in foreclosures, because the vast majority of homeowners have built up substantial equity in their homes despite large mortgage-market-financed withdrawals of home equity in recent years,” Greenspan said in testimony to the House Financial Services Committee.
     
   • September 2007: “I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believe then, as now, that the benefits of broadened home ownership are worth the risk,” Greenspan wrote in his recent memoir, The Age of Turbulence: Adventures in the New World.
     
   • December 2007: “Cash is available, and we should use that in large amounts, as is necessary, to solve the problems of the stress of this,” Greenspan said in an interview on ABC’s “This Week.” He suggested the government should boost support to homeowners facing the prospect of losing their residences because their mortgages were resetting at higher interest rates.

7. The eternal theme of brainless sheep and greedy, corrupt shepherds. Systemic corruption and wanton greed of those who knowingly aided and abetted the secularization mess is nothing new in history and has strong parallels with Imperial Russia demise. In both cases the key players understood perfectly well that it will  inevitably hurt the society. 

Chapters within the Thesis

1. Literature Reviews.
2. Key areas of similarity
3. Results and Discussion.
4. Conclusions.

Alan Greenspan Is The Man

Greenspan, Entourage Demolish Hotel Room

LOS ANGELES—Federal Reserve Chairman Alan Greenspan once again found himself in legal trouble Monday, when he and several members of his extensive entourage were arrested for allegedly destroying a penthouse suite at the Beverly Hills Hotel.

 

Above: Fed chief Alan Greenspan is led to a holding cell following his arrest for trashing a hotel room. It is his third such arrest in as many years.

Hotel officials say Greenspan, in town to address an annual convention of Federal Reserve District Bank presidents, caused an estimated $8,500 in damages to the room, the surrounding hallway and the swimming-pool area.

Said Beverly Hills Hotel manager Giles Laurent: "The television screen and cabinet had apparently been kicked in. Two chairs were thrown out the window. The mattress was ripped and its stuffing was flung all over the room, as well as into the hallway." Laurent added that minutes before police arrived, Greenspan, with the help of Deputy Treasury Secretary Larry Summers, pushed a vending machine off the balcony overlooking the hotel's swimming pool.

... ... ...

Greenspan got into more trouble Saturday night, when he, Fed Vice-Chair Alice Rivlin and several other members of his inner circle visited the trendy L.A. night spot The Viper Room. Clubgoers reported seeing Greenspan, still high off the dollar's late rally against the yen Friday afternoon, shout obscenities and throw ashtrays at the club's DJ. When security personnel attempted to restrain him, Greenspan became belligerent, yelling, "I'm Alan Fucking Greenspan," and vowing to put bouncer Frank Rizzo in a "hurt bracket." The incident is already being compared to his infamous July 1997 fistfight with John Kenneth Galbraith at New York's China Club.

According to Federal Reserve Board insiders, Greenspan, buoyed by the U.S. economy's robust 5 percent growth rate in 1998, as well as flattering cover stories in Barron's, Forbes and Time, has grown increasingly megalomaniacal in recent months.

"He'll spend hours talking about how he's the greatest economist who ever lived, how he's 'bigger than Keynes,'" said one member of the Fed Board of Governors who wished to remain anonymous. "Every time he prevents economic disaster in Brazil or Indonesia by manipulating interest rates, his bloated ego just swells even more. It's just the sort of irrational exuberance he himself once warned against."