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Politics : Formerly About Applied Materials

AMAT 267.87

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Dec 5 9:30 AM EST

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To: StanX Long who wrote (61619)	3/7/2002 12:31:43 AM
From: StanX Long	Read Replies (1) of 70976

Why Greenspan allowed irrational exuberance The Federal Reserve's past reluctance to crack down on a runaway bull market raises questions about its remit, say Gerard Baker Published: March 6 2002 19:46 \| Last Updated: March 6 2002 20:22 news.ft.com In the summer of 1996, while Bill Clinton was surfing to re-election on a wave of equity market euphoria and spreading national prosperity, the mood inside the Federal Reserve in Washington was anxious. Policymakers on the central bank's federal open market committee (FOMC) were concerned that the stock market had begun one of its periodic bouts of financial amnesia and was pushing equity valuations to levels that required increasingly far-fetched intellectual justifications. Alan Greenspan, the Fed chairman, and his colleagues pondered what to do. Should they direct policy explicitly towards the goal of knocking some of the wind out of the stock market? Or should they keep their focus instead on real indicators of overheated economic activity - goods and service prices, wages - none of which were flashing any warning lights? By the end of the year, Mr Greenspan had seen enough. In December he delivered his famous "irrational exuberance" speech. The Fed, it seemed, was going to do what was necessary to stop the explosion of an asset bubble of the sort that had done so much harm to Japan's economy a few years earlier. Whether through verbal warnings, higher interest rates, or perhaps even more direct measures such as imposing margin requirements, the central bank looked ready to stop the party.

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