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Greenspan is talking like the "compleat" bureaucrat. He doesn't like overvalued stocks. Fine. But the way to correct that problem is not to raise overall interest rates but to raise the margin requirements from 50 percent to, say, 60 or 70 percent (the amount of backing you need to get margin funds). Unfortunately, a different agency controls margin requirements, so that would not be a solution of interest to Greenspan. Higher overall interest rates would also have the effect of putting a damper on U.S. made products for export, since the value of the dollar would rise against many other currencies. That, in turn, would make it more difficult for some countries to pay off dollar denominated loans. Since the Fed controls mainly interest rates, it thinks only about what it can do to tweak things here or there, not about how it fits into the overall scheme of things, and what, if anything, might be done more appropriately by some other agency or mechanism. By the way, I published a study of the regulatory process in 1975, in which I developed a theory that intelligent regulation (and I emphasize intelligent) can make the markets do better than no regulation at all, by forcing those who enter the market to make decisions for a longer time span. Just wanted to show you where my bias is on this subject. Art |
