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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (1078)	7/1/2002 5:54:34 PM
From: stockman_scott	Read Replies (1) \| Respond to of 89467

Stocks Tumble; Nasdaq at Five-Year Low By Chelsea Emery Monday July 1, 4:51 pm Eastern Time NEW YORK (Reuters) - Wall Street began the third quarter on a dour note on Monday, with the Nasdaq composite index dropping to a five-year low as the multibillion-dollar accounting scandal surrounding former high-flying phone company WorldCom Inc. (NasdaqNM:WCOME - News) deepened. The Nasdaq (NasdaqSC:^IXIC - News) dropped through the Sept. 21 low it touched after the attacks on the United States, and kept falling to close at a level unseen since June 10, 1997. Wall Street's accounting woes, along with jitters about political turmoil overseas and worries that the July 4 holiday may bring another attack on the United States, prompted investors to shy away. "People are nervous about July 4th, the next WorldCom ... just pick your poison," said Donna Van Vlack, director of trading at Brandywine Asset Management. "It's darn hairy out there." A surprisingly strong forecast from 3M Co. (NYSE:MMM - News) did little to underpin confidence as investors stayed on the sidelines in a shortened trading week. Major stock markets will be closed on Thursday for the July 4 holiday and close early on Friday. "It's called a bear market," said Dan McMahon, head of block trading for CIBC World Markets. "The concerns are that the economic recovery is not as robust as people had hoped for and there's still a huge cloud of pessimism over accounting issues. People are waiting for the other shoe to drop. It's also a holiday week so volatility is exacerbated." The technology-laced Nasdaq Composite Index (NasdaqSC:^IXIC - News) was down 59.45 points, or 4.06 percent, at 1,403.76, according to the latest available figures. That was its lowest close since June 10, 1997, when the index closed at 1,401.60. Last Sept. 21, the index closed at 1,423.19. The Dow Jones industrial average (CBOT:^DJI - News) was down 133.47 points, or 1.44 percent, at 9,109.79. The broader Standard & Poor's 500 Index (CBOE:^SPX - News) was down 21.17 points, or 2.14 percent, at 968.64. Breadth was negative, with about two stocks falling for every one that gained on Nasdaq and the New York Stock Exchange. About 2.97 billion shares traded on Nasdaq, with trading in WorldCom contributing about half of that volume. About 1.42 billion shares changed hands on the Big Board. WorldCom, which said it faces delisting from the Nasdaq on July 5 and received notice it has defaulted on some loans, fell 93 percent, or 77 cents, to 6 cents. More than 1.5 billion shares of WorldCom were traded, breaking the Nasdaq's record for most shares traded in an individual issue on a single day -- last broken by WorldCom itself in May. Trading had been halted since last week after WorldCom's admission that it did not properly account for $3.85 billion in expenses. The telecoms firm also said its audit committee is reviewing its financial records for 1999 through 2001. "It's just a question of what industry is the next one to get a major hit," said Adam Tracy, head of listed trading at Thomas Weisel Partners. "Accounting really worries a lot of people." Computer services company EDS Corp. (NYSE:EDS - News) slumped 18 percent after it said it expects WorldCom, an important customer, to account for $160 million to $175 million of EDS revenue and 3 cents to 4 cents of EDS earnings per share in both the third and fourth quarters. Separately, EDS said it ended talks with consumer products giant Procter & Gamble Co. (NYSE:PG - News) related to a potential contract said to be worth about $1 billion. EDS fell $6.70, or 18 percent, to $30.45. Procter & Gamble gained 73 cents to $90.03. Diversified manufacturer 3M helped limit losses in the blue-chip Dow index with a gain of $4.40, or 3.6 percent, to $127.40 after saying second-quarter earnings will be higher than expected due to improved sales. Johnson & Johnson (NYSE:JNJ - News) and partner Alkermes Inc. (NasdaqNM:ALKS - News) took a hit after the U.S. Food and Drug Administration rejected their bid to market a long-acting, injectable version of the lucrative schizophrenia treatment Risperdal, the companies said. Johnson & Johnson fell $1.76 to $50.50, while Alkermes lost 68 percent, down $10.86 at $5.15. Biotech shares like Alkermes were a major drag on the Nasdaq market. The Nasdaq biotechnology index (NasdaqSC:^NBI - News) fell nearly 9 percent. Sector leader Amgen Inc. (NasdaqNM:AMGN - News) was down $3.52, or 8 percent, to $38.36. One bright spot, though, was Tyco International Ltd. (NYSE:TYC - News), which topped the list of the New York Stock Exchange's most actively traded stocks. Investors were betting the public share sale of CIT, Tyco's finance arm, would help the cash-strapped company meet its urgent debt payments. Tyco closed up 24 cents to $13.75. After the bell, Tyco raised a less-than-expected $4.6 billion from the sale of CIT. Investment bank Merrill Lynch also fanned investors' worries after it cut its year-end targets for the S&P 500, reflecting lower expectations for corporate earnings. Merrill cut its S&P 500 target to 1,050 points from 1,200. Trading volumes are expected to thin as investors slip out to begin their July 4 holiday. "By the time you get to Wednesday, everybody will be sliding out," said Larry Wachtel, market analyst at Prudential Securities. "The following week, when the second-quarter earnings actually start to arrive -- that's the moment of truth for the market, but this is really kind of a throw-away week."

To: Jim Willie CB who wrote (1078)	7/1/2002 6:02:41 PM
From: stockman_scott	Read Replies (1) \| Respond to of 89467

Economy, scandals may keep Fed from raising rates Mon Jul 1, 6:29 AM ET Barbara Hagenbaugh, USA TODAY WASHINGTON -- In the wake of the latest business scandals, a growing number of economists expect the Federal Reserve ( news - web sites) will leave interest rates unchanged at their current 40-year low for the rest of the year, keeping it cheap for consumers to buy homes and run up their Visa bills. ''The Federal Reserve clearly does not want to touch the dials right now,'' says Paul Kasriel, chief economist at Northern Trust, who says it's a ''coin flip'' whether the Fed tightens this year. That's quite a shift from the start of 2002, when most analysts thought Fed chief Alan Greenspan ( news - web sites) would have started raising rates by now. What's changed? * Scandals. Brouhahas, such as the Martha Stewart stock trade controversy and the WorldCom accounting fiasco, have shaken nerves around kitchen tables and corporate boardrooms across the USA. That's causing chaos on Wall Street, which may lead to a decline in business and consumer spending -- the bedrocks of the U.S. economy. ''It would take one hell of a stock market rally from here to get them to do anything anytime soon,'' says Greg Valliere, managing director at Schwab Washington Research Group. * Gloomy CEOs. Executives have been unable to shake their bad moods despite encouraging economic data. That means companies are less likely to invest in their businesses and hire new workers, two key factors that are important for the economy's health and that have been soft thus far in 2002. * No inflation. Price pressures have been a no-show this year and are at their lowest in decades. On Friday, the government reported that Greenspan's favorite inflation measure, the personal consumption expenditures index less food and energy, was unchanged in May and was up just 1.6% from a year ago. An inflation rate that low gives the Fed time to watch how the economic recovery plays out. * The Fed schedule. After leaving rates unchanged last week, the Fed will meet four more times this year: Aug. 13, Sept. 24, Nov. 6 and Dec. 16. Just about every economist says the economy is too weak to raise rates in August. The November meeting comes one day after the U.S. election, and Republican Greenspan would be opening himself up to criticism that the Fed delayed raising rates until after the election to help the GOP. The Fed is not expected to start raising rates in the holiday month of December, either. Just think of the political cartoons of Greenspan tearing the reins away from Santa Claus. That leaves September. While many analysts say a hike in September is possible, others note the economy may still be too uncertain and the closeness to Sept. 11 would make it inappropriate. ''I just can't see commencing a tightening program in an atmosphere of public mourning,'' says Neal Soss, chief economist at Credit Suisse First Boston.

To: Jim Willie CB who wrote (1078)	7/1/2002 6:26:19 PM
From: stockman_scott	Read Replies (3) \| Respond to of 89467

Stephen King: Crisis of capitalism raises threat of excessive caution This desire to preserve rather than create wealth is a direct route towards deflation The Independent 01 July 2002 First Enron. Then WorldCom. Should any of this come as a surprise? For those of you who've read Charles Kindleberger's Manias, Panics and Crashes, the answer should be "no". Kindleberger's book devoted a whole chapter to swindles. He argued that, throughout history, swindles were all too often associated with speculative bubbles. In one sense, this should not be too worrying. After all, the global economy has gone from strength to strength over the years despite these occasional rather unpleasant setbacks. Crises of capitalism do happen from time to time but, to date, no one has come up with a better alternative to the capitalist system. Try telling that, however, to the owners of Enron or WorldCom shares. The capitalist system may be the best that's around but, from time to time, it works a lot less well than it should. Of course, we will now enter a feeding frenzy of blame and counter-blame, with directors, shareholders, auditors and regulators all pointing their fingers at each other. Regardless, however, of who is ultimately to blame, perhaps it's worth thinking about some of the key economic consequences of this latest debacle. The most obvious short-term consequence is a further period of weakness for equities and for corporate bonds. In simple terms, why should people choose to own a company – or lend to a company – that might be guilty of financial jiggery-pokery? This, in turn, has serious consequences for the ability of entrepreneurs to raise funds. If the markets cannot easily separate out the good from the bad and the bad from the downright ugly, there's a good chance that previously decent investment opportunities will simply fall by the wayside. These observations are already providing a threat to economic recovery. One way to consider this issue is to think about the difference between the cost of capital and the expected future return on capital. On a very simple basis, the cost of capital is a reflection of the level of interest rates or the cost of borrowing, heavily influenced by central bank policy. The expected future return on capital is a lot more difficult to measure but, intuitively, is a measure of the likely profitability of any given investment. As Keynes argued, this expected future return is subject to the "animal spirits" that appear to dominate financial market behaviour. When profits have been mis-stated or have come in lower than expected and when companies begin to scale back their capital spending, you can be fairly sure that either the expected future return on capital has come down or, alternatively, has become so uncertain that a sensible business decision is impossible to make. Equity markets provide a potentially useful barometer of the expected future return on capital – when they're rising quickly, they may indicate a higher expected future return and when they're falling back, they may be indicating trouble ahead. This week's table suggests that the recent performance of equities is a cause for concern. I've shown the performance of the S&P500 – purely in index terms – in the six months, 12 months and 18 months after the start of a period of aggressive Federal Reserve monetary easing over the past 30 years. The dismal performance over the past 18 months is completely different from any other occasion since the 1970s. This suggests that, although the cost of capital has fallen in the US – typically a piece of good news for economic recovery – the expected future rate of return has also fallen, thereby reducing the potential power of monetary policy to re-ignite economic growth. My chart this week is a crude attempt to combine the cost of capital with the expected future return on capital. It's a simple measure of the level of Fed funds (the interest rate that's set by the Federal Reserve) adjusted for inflation. However, unlike the usual approach (where you simply deduct the consumer price inflation rate from the nominal interest rate), I've taken nominal interest rates and deducted the rate of inflation of share prices, which I 'm using as a barometer of expected future returns on capital. The chart throws up some rather interesting results. In the second half of the 1990s, the nominal level of Fed funds was relatively high. Yet, because equity prices were rising so quickly, this didn't seem to matter very much. If expected future returns were up at 15 or 20 per cent, why would you worry about an interest rate of, say, 6 per cent? On this basis, monetary policy could be described as relatively accommodating, even though interest rates were historically quite high. Over the last couple of years, exactly the opposite conclusion applies. The Federal Reserve may have slashed interest rates, thereby cutting the cost of capital, but expected future returns have fallen back even faster, if equity market performance is any guide. As a result, the effectiveness of changes in monetary policy may have been seriously reduced compared with the past. Why borrow at current market rates when expected future returns, as revealed through the equity market, are negative? Central banks do not like these crises of financial confidence. They change the usual relationship between changes in interest rates and their impact on the wider economy. Back in 1998, the Federal Reserve slashed interest rates in the wake of the LTCM crisis in an attempt to restore market confidence. This time around, there's a lot less talk of interest rate cuts to come. However, it's becoming increasingly clear that the Federal Reserve is in no hurry to raise interest rates. Why bother? Inflation is low and falling. The declines in equity prices suggest a level of financial distress that is limiting the power of the earlier rate cuts. And, in recent months, the consumer has finally started to wobble. From March through to May, consumer spending in the US didn't budge an inch. Admittedly, we haven't seen any significant declines. Nevertheless, the former powerhouse of the US economy now appears to be licking its wounds, a reflection of weaker income growth and persistent losses on the stock market. In the first half of this year, the markets seemed to think that central banks were engaged in a fight against resurgent inflation. With a cyclical bounce coming through, inflation apparently was an obvious threat. Yet, with final demand failing to sustain recovery in the US, in most of Europe and in Japan, central banks have a far bigger problem on their hands. The persistent declines in equity prices, the falls in bond yields and the signs of corporate misadventure are all signs that excessive caution is becoming an endemic feature of the financial system. As I have argued in this column before, this kind of caution – this desire to preserve rather than create wealth – is a direct route towards deflation. Central bankers dare not mention the "D" word because it is far too dangerous a scenario to contemplate. But, in the inner recesses of their minds, I reckon that deflation is their worst nightmare. And, as Japan found in the 1990s, excessive equity valuations and subsequent financial misadventure are precisely the vehicles through which deflation may ultimately arrive. Stephen King is managing director of economics at HSBC. news.independent.co.uk

To: Jim Willie CB who wrote (1078)	7/1/2002 6:31:33 PM
From: stockman_scott	Respond to of 89467

Shocked and angry: the prophet whose warnings over Wall Street were ignored Interview: Professor JK Galbraith - Economist By Rupert Cornwell in Cambridge, Massachusetts The Independent 01 July 2002 This surely is the hour of John Kenneth Galbraith, grand old man of American economics. But those who travel to the leafy suburbs of Boston in the expectation of a giant and gloating "I told you so" will come away disappointed. Amid the debris of Enron and WorldCom, the lifelong critic of unbridled corporate power exhibits none of the satisfaction of a prophet whose warnings have come to pass. "Those of us who've concerned themselves with this matter cannot take satisfaction for discovering that we were at least partly right. That's too much like seeing a Colorado forest fire and knowing there was inadequate protection." The size, too, of the problem has astonished him. Galbraith is 93 now, close to the end of one of the more remarkable American lives of the 20th century, in which he has been professor, author, ambassador, adviser of Democratic presidents from Roosevelt to Johnson and perhaps the most famous left-wing economist of his age. These days, frail health forces him to receive visitors in an upstairs room in his rambling, wood-panelled house on a side street behind the Harvard University campus. On a sun-dappled summer afternoon, this Cambridge in North America reminds you irresistibly of north Oxford in England, with its quiet streets and shady gardens. But if the body is frail, the mind is as sharp has ever. Indeed, he has just finished a book dealing, among other things, with corporate fraud. For his influence and his fame Galbraith never won a Nobel prize – perhaps because he writes too clearly and too elegantly in a field where impenetrability has a habit of being confused with genius. Even John Maynard Keynes, at whose knee Galbraith went to the English Cambridge to study in the 1930s, has not been spared his pupil's tongue. Galbraith once criticised the "unique unreadability" of the General Theory, noting acidly that "as Messiahs go, Keynes was deeply dependent on his prophets". But for all his historical perspective, Galbraith is reluctant to rank this crisis in comparison with other watersheds of American capitalism: the depredations of the robber barons and the ensuing anti-trust legislation, the stock market crash of 1929 and the excesses of the 1980s (in retrospect a trailer perhaps of the even greater follies of the 1990s). "We can't say how serious this is yet, and anyone who makes such a prediction is suspect," he says, eschewing the giant soundbite dangling in front of him. "I can only say I hadn't expected to see this problem on anything like the magnitude of the last few months – the separation of ownership from management, the monopolisation of control by irresponsible personal money-makers." Time and again as we talk, the author of American Capitalism and of The New Industrial State, the chronicler of The Affluent Society, returns to the same two points. His first is that the large modern corporation, as manipulated by what he calls the "financial craftsmen" at Enron and elsewhere, has grown so complex that it is now almost beyond monitoring. Second, and consequently, these new entities "have grown out of effective control by the owners, the stockholders, into nearly absolute control by the management and the individuals recruited by management". And in the process, he insists, this latter group has "set its own compensation, either in the form of salaries which can get to fantastic levels, or of stock options". Such was their power that until they carried their behaviour to extremes and the companies collapsed, "there was almost no criticism from the shareholders – the owners". Galbraith detects something of the conspiracy of silence he recounted so memorably in his book The Great Crash: 1929, first published in 1955 but as readable today as it was then. "They remained very quiet," he wrote of the financial luminaries of that era. "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. To speak out against madness may be to ruin those who have succumbed to it. So the wise on Wall Street are nearly always silent. The foolish have the field to themselves and none rebukes them." And so it has been today, just as 73 years ago. "There's still a tradition, a culture of restraint," he says, "that keeps one from attacking one's colleagues, one's co-workers, no matter how wrong they seem to be." Amid the current wreckage, this unrivalled student of American business through the ages can identify few crumbs of comfort. One perhaps is that 21st-century-style corporate "larceny" has by and large not infected older established companies. Another is that if Enron and the rest were bad, the accounting industry was worse still. Galbraith still produces aphorisms to die for, including what may become the epitaph of this age of feckless book-keeping: "Recessions catch what the auditors miss." But behind the quip lie genuine shock and anger. "I've been tracking this matter for a lifetime, and my greatest surprise was the sheer scale of the inadequacy of the accounting profession and some of its most prominent members. I've been looking at auditors' signatures all my life, but I will never again do so without some doubts as to their validity. There must be the strongest public and legal pressure to get honest competent accounting." However belatedly, Galbraith believes that may happen. Indeed, the whole philosophy with which he is identified, of corporate regulation and greater public control of the private sector, may be edging back in favour, two decades after it went out of fashion under Ronald Reagan. "One of the vocal critics of corporate behaviour," he notes with a wry smile, "has been none other than George Bush. There's no doubt these scandals have altered the mood of the country, and altered the notion that there can be no interference with the free enterprise system. There'll be a search for ways in which the management can be made more responsible, both to shareholders/owners and to the community at large." Steps must be taken, says Galbraith, so that boards of directors, supine and silent for so long, "are clearly the representatives of stockholders' interests, and are competent to exercise that responsibility". Much of this will feature in his new book entitled, rather bafflingly, The Economics of Innocent Fraud, due to be published next year. Talking to Galbraith, you realise that the "innocent fraud" embraces the entire economic system, no less – a system in which, in many respects, "belief has no necessary relation to reality". Almost everyone, economists included, is unwittingly accomplice to the fraud. One comforting delusion, says Galbraith, Keynesian to the core, is that the central bank can control the economy simply by tweaking interest rates. "Nothing is more agreeable and reassuring than that the Federal Reserve System and the excellent Alan Greenspan can guide and stabilise the economy by small changes in interest rates. We've hoped and dreamt of this since 1913 [the year the Fed was set up up by President Woodrow Wilson], but it hasn't worked in any predictable way." Instead Galbraith cites the Second World War and the years when he was at the heart of policy-making, running the Office of Price Administration, surely the most interventionist agency in the history of US economic policy-making. The Fed was to all intents and purposes set aside for the duration of the war as the government, not the market, set price levels. Business loathed the OPA, but it worked. "We came through that period of great expenditure and disaster with no memory of inflation." If the Fed's role is one false assumption, another – now so shockingly exposed – is that corporations always tell the truth. Even the name of the game is a deception, Galbraith argues. "It's no longer called 'capitalism'. That has an inconvenient history. Now it's known as 'the market system', supposedly controlled by consumers – but in a world where the greatest intellectual and artistic talent goes into the management of consumers." Recent events have forced some rewriting of the book, but Galbraith is now confident he has the emphasis right. Capitalism, though, is nothing if not adaptable. It has to be, with so much riding on the system for almost everyone. In the course of his life, Galbraith has seen America go full circle, from the harsh neglect of the Depression to the New Deal and now back – to some extent at least – to the ruthless ways of the past. "The national mood is less fair today," he says. "We are far more tolerant of a large takeover of revenue by the rich." On the other hand, "the conscience of the community has improved greatly. "That was the achievement of Roosevelt and the New Deal. Public attitudes were never quite the same again." But then Galbraith leapfrogs 70 years and a dozen presidencies to the massive Bush tax cuts of 2001 to reinforce his point that nothing very much has changed. "It is still politically safe to be very rich," he says, citing what he calls the "imaginative developments" of the Bush administration as a prime example. "Assuming they will not be in power indefinitely, they are taking the interesting step of enacting tax legislation not for the immediate future but for all of a decade hence. We not only legislate for the affluent, we do it for their permanent advantage." And suddenly, once more, the impish delight of the phrasemaker bursts through. "How's that?" he asks with the sly chuckle of an iconoclast 93 years young. news.independent.co.uk

To: Jim Willie CB who wrote (1078)	7/1/2002 8:30:35 PM
From: stockman_scott	Respond to of 89467

The Bottom Line on The Market... marketweb.com

To: Jim Willie CB who wrote (1078)	7/1/2002 9:43:31 PM
From: SOROS	Read Replies (2) \| Respond to of 89467

State of the world: theaustralian.news.com.au story.news.yahoo.com

To: Jim Willie CB who wrote (1078)	7/1/2002 9:44:10 PM
From: SOROS	Respond to of 89467

upi.com

To: Jim Willie CB who wrote (1078)	7/1/2002 9:52:02 PM
From: SOROS	Read Replies (1) \| Respond to of 89467

This is part of what I've been ranting about: Oracle counts on trader gullibility Market 'pros' fall for a line they’ve heard again and again, making lemonade out of one really sour earnings report. By Bill Fleckenstein This edition takes a peek at the dicey nature of today's market environment, in which rank speculation sometimes triumphs over fear. Recently, Oracle claimed such a victory when one of its skillfully timed news releases unleashed a wave of speculation among "professionals." No clairvoyance needed to guess that outcome. Of course, some people mistakenly attribute oracular powers to the individual currently installed as chairman of the Federal Reserve. Funny, how this "visionary" couldn't see an asset bubble growing under his very eyes due to a fondness for monetary easing that promulgated gambling fever. When Oracle (ORCL, news, msgs) reported its numbers recently, the action in the futures market that evening, as well as what transpired the next trading day, offered a perfect microcosm for what's been happening in the stock market. Let's begin by observing that Oracle announced its numbers with about five minutes to go in futures trading (which extends 15 minutes beyond equity trading). After the company proclaimed that software license revenues were better than expected and gave off some feel-good body language in the press release, Nasdaq futures exploded to the tune of about 3%. The fly in the anointment People are so rabid to latch onto any piece of news, anoint it as "good" and then try to make the case that the bad news being behind us and therefore the bottom is in, that they will leap on a press release and explode the whole Nasdaq 100 complex to the tune of 3%. They will do this while all the news around them points in the opposite direction. They won't even wait to see what happens on the conference call. Shortly after the futures closed that evening, semiconductor maker Advanced Micro Devices (AMD, news, msgs) preannounced a revenue miss of 25%, and Apple Computer (AAPL, news, msgs) announced it missed its revenue estimate by 20%. While most people are willing to disregard AMD and Apple (and I'll grant you, they are not the most important tech stocks on the planet), it's interesting to note that Apple is a few months into its first new product in four years, and there's no interest from consumers. What both Apple and AMD signify is the fact that demand is horrible. These were massive misses. When the futures reopened, they were hammered to the tune of 4% from the price they closed at, which meant that net/net, within two hours after the close, the Nasdaq futures were basically down 1%. Then, during its call, Oracle guided lower for the next quarter. That brings up the subject of why on earth people would pounce on good news from a company with such a consistent pattern of cleverness, which in the last nine months has more than once indicated good things were coming in the quarter, only to preannounce a miss shortly thereafter. Furthermore, on at least two of those occasions, Oracle chose to preannounce at 5:30 p.m. Pacific time on a Friday afternoon. This is one of the least trustworthy managements in all of technology. Oracle pie a la modus operandi In any case, on that evening, Oracle's "style" was demonstrated loud and clear by its familiar two-step: first putting out an everything's-rosy press release and then lowering guidance on the call. The fact that Oracle had a good quarter means zero because of the fact that it lowered guidance for the next quarter (after CEO Larry Ellison had said the quarter was sound). Given his track record, how do we know he didn't pull in some orders from next quarter to make the numbers this quarter? So, across the board, the news that night was horrible, as it indicated that demand for information technology products just hasn’t materialized. Now, that shouldn't be a surprise to anyone, but the fact that the initial Oracle news was seized upon shows why we can't even contemplate a stock market bottom or even a tradable low. This is not what one sees at those junctures. There should be abject fear and real concern, not to mention low prices, although a tradable low would not necessarily require true values. In any case, as I watched the events unfold, I just could not help being struck by the fact that it was such a beautiful example of all that is wrong. It just goes to show you what rank speculation still exists among the so-called professional community. The public is slowly getting disgusted, and so they are not sending the money to the mutual funds, but the people who have other people's money are still acting like the same drunks that they were during the mania. I would point out that not everyone is guilty of this. I know there are managers who take their jobs seriously and don't throw money at everything that moves. But as one can see from the action described above, there are also an awful lot of people who check their thinking caps at the door and just react to any sort of price action. They don't care if they lose money, but they are afraid that if the market goes up without them, they'll lose their jobs. Porous Wessel Segueing to the corporate netherworld, where lots of players should be shown the door, I'd like to talk about a recent article in The Wall Street Journal titled "Why the Bad Guys of the Boardroom Emerged en Masse," by David Wessel. It's pretty worthwhile in the sense that it raises a lot of significant issues, and it also asks many questions. However, I would like to point out the irony of the Journal -- a publication that once capitalized the "n" and the "e" in "new economy" -- beginning a series called "What's Wrong?" Notably, in an article last summer, the author referred to Alan Greenspan as King Alan. Wessel totally misses what's at the root of the problem, which is the bubble created by Greenspan. (More about that in a minute.) Wessel does note that during the mania, society was most accepting of all the reckless corporate behavior and related sleazy things taking place. During that time, two notorious corporate scoundrels, Al Dunlap from Sunbeam and Walter Forbes from CUC International (who helped blow up Cendant) had basically perpetrated fraud and were walking around free men for the longest time, with no consequences. The Private Securities Litigation Reform Act of 1995 (often referred to as the "Safe Harbor" law) let corporate chieftains gun their stock prices and not have to worry about lying, since it eliminated the consequences to this behavior. The public was in an accepting mood, since everything worked to the upside. Sleaze, on bended knees To the question that Wessel asks -- why so much corporate skullduggery is surfacing now -- the answer is that it's a bear market, stocks are going down, things are being uncovered and people are starting to demand explanations. All of this corporate skullduggery is just human nature run amok. It's really not surprising. It happens in all bubbles. Journalists are digging, because that's what is selling. So now we are finding out about all the things that went on that people didn't know about, and didn't want to know about. Many of us speculated that there was a lot of this going on in the mania, but without a subpoena it was impossible to ever know for sure. To repeat, the socioeconomic mood of the country was to let all things pass, as long as they ended in higher stock prices. After all, we had a president, whether you liked him or didn't like him, who could say on national TV that it all depends on what the definition of "is" is. Nothing encapsulated the mood of the country better than that. (This isn't a partisan comment.) In any case, people were willing to look the other way as long as they thought they were getting rich in the process. Then, the sins get exposed, and no matter how bad you think things were, you always find out that they were worse than you thought. This always happens in bear markets. Anatomy of a keg party Now, for readers who e-mail me to ask why I blame Greenspan, the quick and dirty is this: Alan Greenspan has conditioned the investing public to believe he’s a miracle worker. In all but name, he’s a price fixer. And the price he fixes is not just any price, but the fulcrum interest rate of the global dollar economy. Sometimes, of course, he sets the right price -- how could he not? But at critical junctures, he has set the wrong price -- again, how could he not? But his failures haven’t been random ones. They’ve been the failures of a man who seems to believe that there was never a bad bull market and never a necessary bear market. In the early 1990s, he cut the rate to rehabilitate an ailing economy (and, of course, the sick banks). In 1998, he cut the rate to rehabilitate the financial markets (Long-Term Capital Management had fallen to pieces). In 1999, he cut the rate to forestall the crisis of the computer clocks (which he seemed to have prevented). People couldn’t help but notice that, as he cut the rate, the market went up. They loved him for it. And he did not discourage this adulation. Truth to tell, he seemed to like it. By the time the March 2000 peak rolled around, the chairman of the Federal Reserve Board was giving speeches that might have been written by Mary Meeker, the cheerleading Morgan Stanley Internet analyst. The reason we are in this mess had absolutely nothing to do with the minuscule amount of Fed tightening that went on in the year 2000. (Readers can learn more about the specious arguments surrounding this from a column that I wrote last December. The link is at left.) The mania simply exhausted itself. Our current problems are the result of profligate monetary creation and zero attempts to try to rein in stock speculation. Greenspan was so drunk with his own abilities that he believed he could make the market and the economy do anything. He allowed things to go on in a reckless manner, never once learning anything from his previous bailouts, nor ever attempting to curtail speculation. In fact, he did the opposite by making people believe there was a Greenspan "put" -- a rescue if things got too hot. Monday morning bubble-backs I am continually struck by the fact that people who never believed there was a bubble or a mania now say things like "in the mania" or "in the bubble." Then, while finally acknowledging that we had one, they think everything's going to be OK shortly. This is not what history suggests about bubbles. Though rare, the consequence of them is long-lived. William Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund based in Seattle. He also writes a daily Market Rap column for TheStreet.com's RealMoney. At time of publication, William Fleckenstein owned none of the equities mentioned in this column; he held no short positions in them. Positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security. The views and opinions expressed in Bill Fleckenstein's columns are his own and not necessarily those of CNBC on MSN Money. While Bill Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to fleckrap@hotmail.com.