Bill Bonner speaks of the "Greater Fool Theory"
"Capitalism is not working. There has been a corrupting of the system of capitalism."
The remarks are attributed to Alan Greenspan, central banker to the entire world...and reported by former Treasury secretary Paul O'Neill.
Few doubt it.
The common shareholder buys stocks with less than 2% dividend yield. How could it make sense? He earns less than the rate of consumer price inflation. Far less than the rate of housing price inflation. Less even than he could get from putting his money in a 'risk-free' government bond. The only way he could possibly come out ahead would be by finding a 'greater fool' to buy the shares from him at an even more preposterous price.
And how likely is that? The smart money has been dumping shares for months - at the highest ratios of insider sales to purchases in history. All that is left are the fools...millions of them. This is all very well at the beginning of a boom; then, there are plenty of fools who have not yet bought shares. Besides, at the beginning, an investor can still get a 5% dividend yield. But at the end of a boom, there are no greater fools left.
Meanwhile, the managers enjoy corporate jets and dining rooms...corporate credit cards, health care plans, retirement programs.
It is presumed that the corruption of the system is the fault of greedy businessmen. More government regulation is said to be what is lacking.
We take a different view. Most of the corruption we see is merely normal and natural, in which greedy businessmen take advantage of gullible investors. We take this as evidence that capitalism is working just fine. Fools and their money are soon parted...no matter what. What is extraordinary about the beginning of the 21st century is that there are so many fools who think they have so much money.
We live in a remarkable era, where - economically at least - almost everything that could go right, did. Interest rates came down...giving consumers more money, which they spent. Housing prices rose, giving consumers the illusion of greater wealth. And the lower rates enabled them to refinance their houses in order to "take out equity" and spend it. They bought goods at cheaper and cheaper prices, from China and elsewhere...and then, the Chinese were nice enough to give them back the money! It was all too good to be true. And it led Americans into a delusion...thinking that what couldn't be true for a single minute would last forever.
You can search for the source of this effervescent delusion down among the greedy businessmen all you want. You will not find it. Instead, look higher - into the farthest reaches of central banking. There...on the banks of the Potomac...in the boardroom of the Federal Reserve...gushes the wellspring of today's popular madness, like cherry coke. And there is the Corrupter in Chief...Mr. Alan Greenspan himself, shaking the bottle... |
