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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (21495)	7/21/2002 3:41:24 AM
From: calgal	Respond to of 74559

Parson Greenspan The fed chairman should skip sermonizing and stick to economics. Sunday, July 21, 2002 12:01 a.m. EDT You know times are lousy when the Federal Reserve Chairman takes it upon himself to offer the world moral instruction. "An infectious greed seemed to grip much of our business community," Parson Alan Greenspan declared Tuesday, by way of explaining our current stock-market woes, and his Senate congregation all shouted, "Hallelujah!" Whereupon the Dow sold off one more time. This is no coincidence, brothers and sisters. Ayn Rand's star pupil is widely understood to be a shrewd political operator. So when even the nation's most famous libertarian feels obliged to denounce capitalist greed, regular investors can be forgiven if they run to stuff their cash in the nearest mattress until the wrath of God, er, Washington passes. Everyone else may be praising the Fed Chairman, but his performance struck us as the equivalent of listening to a Sunday sermon on the money supply. It didn't quite fit the moment. As the nation's leading financial official, one of Mr. Greenspan's jobs is to calm jittery markets; instead he gave politicians the green light to roil them further. He also missed an opportunity to educate the public about how we got where we are, rather than simply joining the (by now endless) queue to bash CEOs. For example, Mr. Greenspan might have explained the role that monetary policy has played in the recent boom and bust. "At root" of the recent corporate malfeasance, he said Tuesday, "was the rapid enlargement of stock market capitalizations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice." Translation: We had a bubble, and amid the euphoria ethical standards slipped. Serious people can debate just what a bubble is, but if there was one, then who created it? One suspect would have to be the Federal Reserve itself, for feeding the economy too much liquidity for too long. Granted Mr. Greenspan had to steer the economy with the single oar of monetary policy during the 1990s, with fiscal policy frozen by pre-Bush political gridlock. But one former Fed official we know cites as a crucial mistake an Federal Open Market Committee meeting in September 1996, when the Fed failed to tighten. Mr. Greenspan nonetheless eased again in 1998, though perhaps prudently amid the Asian crisis and Russian default. Economist Arthur Laffer argues with a lot of evidence that the Fed really goosed the bubble by easing money in the run-up to the Y2K scare, only to pop it later when it drew liquidity back out. The broader point is that much more was fueling the stock market in the late 1990s than "greed," infectious or not. Now that the bubble has burst, Mr. Greenspan has a bigger obligation than joining in the political retribution. To be fair, anyone who sat through his entire hearings heard the chairman express his faith in the strength of the current economic recovery and the productivity gains that underlie it. "Beneath it all is still a very soundly functioning system, as best I can see it," he also said, regarding corporate governance. But of course all of that was blown away by the foreseeable headlines reporting his denunciation of greed and a "once-in-a-generation frenzy of speculation." One economic void that needs filling at the moment is the one in statesmanship. We're all for punishing CEOs who break the law. But in Congress now the panic is on. Republicans sound as demagogic as Democrats, with House Republican Jim Sensenbrenner attacking the just-passed Senate CEO-crime bill as not vindictive enough. The Bush Administration seems swept along with the tide, with even President Bush offering only scolding speeches. And Deputy Treasury Secretary Kenneth Dam recently told the Australian Financial Review that American stocks are still overvalued. How this will stabilize things is a mystery. All of this explains the recent stock-market panic as much as any fear of some corporate crime wave. Yesterday in the Washington Post, the legendary, and normally restrained, Intel Chairman Andrew Grove compared today's anti-business atmosphere to the Communist Hungary he fled as a boy. Maybe the journalists who put Mr. Grove on their covers not long ago should listen to him. A runaway political class that includes even Alan Greenspan is a lot more dangerous to the markets and to American prosperity than are a few crooked CEOs. opinionjournal.com