Zeev:
RE: I don't see that the margin requirement had much to do with the bubble,
I appreciate your usual thoughtful and cogent analysis. Substitute "raise interest rates" for "increase the margin requirement" in my argument, and I resubmit my proposition that he could have stopped the bubble, which he recognized, before it became so great, producing the eventual (Austrian Economics) greater "bust" phase after the preceding excessive boom of malinvestment.
Perhaps your hypothesis for Greenspan's motives is correct. If so, he has done what he thought was best. But I am not so sure his motives were so pure.
Call me a cynic, but I wonder, for example, if he did not make a "devil's bargain" with the brokerages he cobbled together to bail out LTCM in 1998 (to the tune of 3.6 Billion bucks). As I remember it, it was only two weeks later, when, on expirations day, after the bond market closed, he announced an unexpected interest rate cut. I really wonder if those brokerages had been tipped off and were all long S&P futures contracts? If so they got back their money quickly.
Best wishes, and I am joining IHub to follow you, by the way.
Jack |
