Date: Thu Jan 15 2004 21:09
trotsky (EJ@Greenspan) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i certainly agree with that...he wants to be liked, and he's in the 'our currency/debts, your problem' camp as far as the ROW goes, and confident that the self-interest of the lenders precludes a bankruptcy of the debtor.
mind you , i even agree with many of his positions , e.g. on trade and the free flow of capital, i even agree that regulation of the financial industry shouldn't be too onerous. i agree with everything that involves VOLUNTARY interaction between economic agents, contrary to many here. i don't think there's a need to hurt Chinese producers with tariffs for instance in order to 'protect' domestic ones. after all, a voluntary exchange between US consumers of Chinese goods and Chinese producers of same MUST be beneficial to both - otherwise they wouldn't agree to such an exchange.
i for one fear that whoever comes AFTER Greenspan may well turn out to be worse than he is - i'm thinking of guys like McTeer or Bernanke, who seem to put their Keynesian faith into believing that the printing press will overcome all ills. good for gold no doubt, but BAAAD news on almost all other fronts.
with Greenspan at least one always has this vague feeling that he may be having an as-of-yet unrevealed plan for post armageddon. he may be the head of a central planning agency, but at least he defends free market ideas when confronted with overeager pork-barrel socialists in Congress for instance.
still, i remain covinced that his fight against the k-winter is not only futile, but actually highly damaging. we'll see in the not-too-distant future i guess.
Date: Thu Jan 15 2004 20:09
trotsky (Carmack@bank mergers) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
the problem as i see it is a different one. namely the fact that the many mega-mergers of recent years have left the otc - derivatives markets concentrated in too few hands. this has imo heightened sytemic risk, as a liquidity problem at just one of the major players could lead to a seizing up of the entire system. of course the printing press would be brought to bear upon such a problem immediately, just as happened in '87 and countless other occasions since ( whereby the Fed opens an 'unlimited' credit line at a special discount to keep the concerned parties from drowning ) , but that heightens the moral hazard problem. such a game is played until the distortions introduced as a consequence of the moral hazard become so large that one day an 'unbailable' financial accident occurs.
that said, the sytem has proven remarkably resilient on several dicey occasions - LTCM came closest so far to crashing it, with the telecom credit bust and Enron cum fall-out a distant second and third. still, as far as i can tell, the risks have increased even further since - even though credit spreads and risk premia currently say the opposite. as such they are merely an expression of the current 'faith' in the market's stability and the bureaucracy's ability to safeguard same ( by reliably 'reflating' at warp speed as soon as a problem becomes evident ) . but that faith can quickly be shaken. it's like building houses in an area prone to be flooded - once a certain span of time has passed sans flood, insurance premiums will fall, and faith that no flood will ever occur again will strengthen. that doesn't mean there won't be a devastating flood - the more houses are built in the flood plain on account of this 'faith' , the more devastating it will in fact prove to be. |
