** Oct 3, 2011: I am re-posting this Feb 2010 post for more light **
Yes, the former Federal Reserve Board Chairman, Greenspan is a crackpot! For over a dozen years, I was passionately making this case to anybody who cared to listen. Even today at lunch, my colleagues were joking with me about how much I loved Greenspan.
In part 1 of this three-part article, I have cued you in for a great (PBS) Frontline Video. Before you watch the video, I want to give you some intro to Greenspan’s crackpot theories:
This video features the go-go-90s during which the follies of Greenspan, Rubin, Summers, Phil Grahm and the US Congress have contributed to the build up of housing bubble; and proliferation of totally unregulated derivatives and the. Not until the financial system of the western economies were brought to their knees due to the popping of the bubble and the implosion of derivatives, has anybody paid any attention to people with common sense or regulators with vision. This Frontline video mainly features an unsung hero, Ms. Brooksley Born with such vision and her fight against Wall Street corruption and the crony capitalism of the “powers that be” at that time.
Here are some (loose) quotes from the video:
At her first meeting with Greenspan, he said something to the effect “You probably think that there should be rules against fraud….. The market will figure it out.
“Greenspan didn’t believe that fraud is something that should be regulated.”
Larry Summers: “You don’t get it. You are going to cause the worst financial crisis since World War 2.” [Editorial insert: She didn’t, he did.]
“In Washington, the financial sector has 5 lobbyists for every congressman” [May be even more now]
“Rubin, Greenspan and Summers have a great deal of faith in their intellect.”
“The market is God, it will punish the fraudsters.”
Bankers Trust brokers, “We set’em up.” “Ha Haa. These idiots really think that this is all in their best interest. huh huh. It is not. It is probably going to clean their clock.” [About P&G]
I voted for Obama and I loved the fact that Volker and Buffet advised him during the campaign. The moment I saw Summers on Obama’s economic team, Obama lost me. Now, a year into Obama’s administration – with Summers, Giethner and Bernanke at the helm of the economic team, I now say, “God help the US economy! The next disaster will be absolutely horrendous.”
How much of a crackpot Greenspan really is? The video speaks for itself. (It is 55 minutes and every minute of your watching this video is worth it.) Educate yourself!!!
Watch the full episode. See more FRONTLINE.
I think we all have to realize that the backbone for any economy development is manufacturing, technology and infrastructure. As long as the country does not focus on these activities and showing some growth, it will be a short term reality. Look at US now. They produce more lawyers, sales people, and service sector development which will not be a long term thing, and it is ultimately ending up like a import country. Whereas, countries like china are spending more and more investment on manufacturing and infrastructure, and in that way they are creating more long term growth and jobs in the country. So as long as we have these low interest rates and irresponsibe govt spending, the development in US going to be another bubble. Hope the higher authorities in the gove recognizes this soon !!!
No to mention those MBA degrees, especially MBA Finance!
As with China, it is spending on infrastructure alright, but things are pretty bad out there. They say China is building huge ghost towns Dubai x 1000. I am not sure where the next implosion will start: Europe, US or China.
I couldn’t agree with you more on the Chinese thing.A buddy of mine moved from the states to China for and lived two years there. He wanted to go back to Hyderabad from there where he is originally from, but came back to the states. I got some very valuable insight into the Chinese thing from him. They have two Chinas, the modern china with infrastructure and the rural china where people still suffer. The whole thing looks like Capitalistic companies run by Comrades.
China is a seen by many as a humongous bubble. They are building entire Ghost cities with no occupants. See what Mark Faber (who has been more correct many times than anybody I know) has to say.
All governments including US will be bankrupt. I prefer Chinese bubble to US bubble.
Yup.The moment the country looses manufacturing, technology and infrastructure they will fall behind others. The only manufacturing (significant) remaining in the US is Automobile industry. ( Not the Detroit one 🙂 ). Honda has plants in Ohio and makes a million vehicles there. Toyota practically owns Kentucky, WV. BMW started slow , but picked up well in Spartansburg S.C. Nissan is huge in Tennessee. Hyundai and Mecedes are making cars in Alabama. And there is this Aviation industry. Other than these, I don’t see any major manufacturing here in US.
Very good and insightful video… still those terms CDS, derivatives, derivatives of derivatives sound so complicated to me.
What is happening in the markets is scary and beyond common sense.
Encouraging people to live beyond their means, cheap money, false growth got us here and no signs of pull back on those.
‘Growth needs capital’ is grossly mis-interpreted. Since when did borrowing and spending considered growth? Borrowing to produce more and more efficiently makes sense but not for vacationing, buy and throw.
Where will it end? In 2009 80% of Treasury securities are bought by Fed, how is it different from printing money when we need in a family and what value does it carry? Even more scary, no indications that this money is going to be spent any where close to producing more or for developing new industries a.k.a. creating wealth.
Since most of US debt is not real money (as in $ bills) but a bunch of IOUs, dollar may be still holding its value, now that we start printing money… good luck with dollar’s future value. With the comes the inflation and high cost of imported goods and even more deficit…. don’t know where it ends and what is ‘relatively’ safe investment that can hold the purchasing power.
Mohan Garu , thank you. great stuff.
CM :- You have been a staunch advocate for letting the markets regulate themselves. My question for you is simple . “Were you wrong ?”
AG :- Yes I found a flaw , but I have been very distressed by that.
CM :- You found a flaw ? in the reality ?
AG :- A flaw in the model I perceived is the critical functioning structure that defines how the world works so to speak
CM:- In other words you found that your view of the world your ideology was not right
AG :- Precisely, That’s precisely the reason I was shocked because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.
This guy could have saved a minute or two there admitting. I remember the days this lanky taciturn used to carry his suitcase during the Clinton time and speak gibberish.
“I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said. ”
Thanks again for the good video.