Greenspan Still Doesn't Get It: Who does?

I was going to just lay out the guts of Doug Noland's latest, continued rant about the impending blow off of our giant "Credit Bubble". But then I wandered over to Jim Kunstler's place and found that his continued rant about our "Long Emergency" deals with Greenspan's reemergence as well. Kunstler's version is more fun, darkly, so we'll air it first (be sure to go to the source, 'cause I left out some of the funniest parts):

Shocked! Shocked! Jim Kunstler, Sept 17: Alan Greenspan's memoirs are being flogged across the airwaves, bandwidths and printing presses, and the cohort of those who comment on public affairs in these media are shocked by the Maestro's confessions -- first, that a housing bubble emerged out of his leadership in the banking sector, and second that the Iraq war is about oil. As usual, they're getting it all wrong -- about as wrong as Al himself got it. But that is the way of things in this age of cultural dissipation and gross cognitive dissonance.

Greenspan claims he had no idea that his cutting of interest rates to near zero would produce any irregularities in the US economy. Apparently he hadn't noticed that the Big Fund Boyz called him "Easy Al" for a reason. Or that when you introduce nearly free "money" (as in "available for lending") into a system of financial trade, the recognition of moral hazard tends to evaporate. As the nation's chief bank regulator, Greenspan also apparently failed to notice the upsurge in dodgy lending practices previously only seen among mafia loan sharks, drug dealers, or twelve-year-olds playing Monopoly.

But the really funny part of all this is that the media columnists are acting as though the American public got hoodwinked by Al. Which raises the question: just what the fuck was the public thinking when they bought half-million dollar houses on salaries under 60-K, taking out no-money-down, interest-optional balloon mortgages and other tricked-up contracts? The answer is: they walked into these arrangements with their eyes open because they thought they could get something for nothing. They thought the trend of steeply rising house prices would continue indefinitely and enable them to wiggle free of any hazard by flipping their houses to an endless supply of greater fools who would be there waiting to turn the very same trick. And the smoothies downstream in the mortgage and banking rackets were no less guided by avarice when they cooked up their formulas for bundling half-baked mortgages into tranches of tradeable securities. Easy Al may have failed to notice what was going on here, but then so did everybody else from The Wall Street Journal to the Securities and Exchange Commission.

This, of course, represents an insidious psychology. It could only happen in a culture that has come off the rails mentally, so to speak, as ours has in the sense that nobody has any sense of consequence, neither the leaders nor those who affect to follow the leaders. The leading religion in America is not evangelical Christianity, it is the worship of unearned riches, and its golden rule is the belief that is is possible to get something for nothing. Its holy shrines are Las Vegas and Wall Street. …

No, the American public, including the cheerleaders in the media, have only themselves to blame for the bitter harvest now underway in the asset and credit markets. And thus it would be salutary thing for Baby Jeezus, or the forces of nature, or whatever powers guide the universe, to now kick the shit out of them, so to speak, financially, because that is exactly what the American public is full of, from top to bottom….

Now, as to the shock of Al's revelation that the Iraq war is about oil -- the media and the public has got this all wrong, too. The logic here seems to be that because the Iraq war is about oil it is therefore unnecessary, optional, a mistake, an indulgence, something we should not dirty our hands in. In fact, the Iraq war is not about oil, per se, so much as it is about America's behavior here at home, about the choices we make for how we live on this continent. None of those who complain most loudly about our military presence in Iraq have advanced any proposals for reforming how we live here -- and hence for our enslavement to oil, much of the world's remaining supply of which happens to be in the neighborhood of Iraq. When these complainers start complaining about the ubiquitous acceptance of suburban sprawl and abject car-dependency -- and this includes the environmental boy scouts out there who want to get merit badges for buying hybrid cars -- then they will deserve to be taken seriously. Until then, the American people have got exactly the grinding war that they deserve. Let them whine about it all the way to the Nascar tracks, and let them console themselves with giant plastic bottles of Pepsi Cola and buckets of chicken raised on corn grown with oil byproducts.

On CBS's "60-Minutes" show last night, Greenspan, in his new role as a private sector economic consultant made predictions for the coming months in the US economy. He declared that the financial sector would get over the current credit squeeze as if it were a mild case of indigestion…. This gets back to the previous point about the Iraq war and oil in particular. Al doesn't get it. CBS's sycophant reporters don't get it. Nobody gets it. We are entering the zone of the long emergency in which the primary resource needed to run the industrial economies will become scarce, expensive, and profoundly destabilizing to markets and to normal life, such as it is known in this country. And the current problem in the markets is a reflection of the resource bankruptcy we are facing. Our problems are not about credit, they are about permanent insolvency. …

"Didn't Really Get It", Doug Noland, Sept. 14: I found it ironic that during the same week Alan Greenspan admitted he "Didn't Really Get It" when it came to the risks associated with subprime lending, Chairman Bernanke publicly reiterated and expanded his "global savings glut" thesis. …

Mr. Greenspan now admits that he didn’t really "Get It" until late 2005, while Dr. Bernanke's intellectual focus at the time was explaining how mounting U.S. Current Account Deficits were a phenomenon of global savings and investment dynamics. Both were more than intellectually content to sit back and marvel at U.S. economic "productivity" and the capacity of contemporary finance to Inflate Credit. Both also worked diligently to construct a framework rationalizing why the Fed needn't pierce Bubbles nor even go so far as administering a little "tough love". Both are curiously oblivious — at least publicly — to the notion of Pernicious Credit and Speculative Excess.

There is no reasonable excuse for our central bankers' failure to recognize and then move to check intensifying Mortgage Credit Bubble dynamics by 2004 — at the latest. It was (and remains) similarly inexcusable to disregard the U.S. Credit system's prominent role in financing rapidly escalating Current Account Deficits and resultant worsening global imbalances. …

The "global liquidity glut" has fomented myriad Bubbles — and the reality that seemingly all of the global ones remain very much in force empowers Chairman Bernanke to stick steadfastly to his "savings glut" theorizing. Yet "saving" doesn't fuel Bubbles — excessive borrowings do. …

Conventional thinking has it that the world economic backdrop, outside of U.S. subprime and housing woes, is vibrant and sound. This favorable backdrop, it is believed, explains global equities markets resiliency in the face of mounting U.S. and global Credit woes. [Alternatively,] the Global Credit Bubble and "Liquidity Glut" perspective takes a quite negative view of the current global backdrop. Bubbles proliferate.

Admittedly, most global Bubbles have been impervious to the Bursting U.S. Credit Bubble. China is a case in point. Yet there are important unappreciated dynamics to contemplate. First, domestic Credit Bubble Dynamics have become well entrenched around the world, especially with U.S. dollar impairment working to decisively limit the risk of currency runs in, say, China, Russia, Brazil, India, Asia and "developing" economies in general. The weak dollar and unrelenting U.S. liquidity outflows (C.A. Deficits and speculative flows) have nurtured quite atypical stability for a group of currencies that would otherwise suffer the acute vulnerability incident to overheated domestic Credit systems, asset markets, and economies.

[T]oday's backdrop would be altogether different had it not been for aggressive and concerted central bank intervention. Huge liquidity injections — and, as important, assurances from Chairman Bernanke to use "all of the tools at his disposal" — kept the U.S. and much of the global securities markets from seizing up. As it was, the extent of Acute Financial Fragility was perceived to require an immediate and bold marketplace onslaught that, ironically, worked to underpin most global Bubbles. Certainly, not much froth was allowed to come out of global equities. No froth has been removed from global inflationary pressures. Lower global yields are destabilizing and portend only greater Global Monetary Disorder.

It is the view of the Bernanke Fed (as it would have been of Greenspan) that a U.S. recession can and should be avoided. This is flawed and dangerous ideology. It is the market's view that the Fed will lower interest rates to whatever level necessary to sustain the U.S. expansion. This is wishful thinking. Recent history has spoiled both the Fed and the markets. Today, recession cannot be avoided, and the weak dollar and robust global inflationary backdrop will limit the Fed's flexibility.

As for our economy, there will be no escaping the harsh consequences associated with the bursting of a historic Mortgage Finance Bubble. Our Bubble Economy has been left severely imbalanced and acutely vulnerable, and it is simply impossible to avoid major disruptions associated with an abrupt curtailment of mortgage finance. California will be the poster child for this unfolding dynamic, although it will play out throughout the country. I'll reiterate my expectation that upper-end real estate — too frequently Bubbles financed by ARM, Alt-A, teaser rate, reset and interest-only mortgages — will prove greatly more problematic than subprime. Commercial real estate will be anything but immune. We have only begun to experience upheaval from the mortgage bust, dynamics that will follow a similar path to the burst technology Bubble — except the wreckage will be significantly more widespread and economic impact broad-based.

Unprecedented central bank interventions and, here at home, six-week Bank Credit growth to the tune of $220bn have sustained financial system liquidity. I question the sustainability of both. Especially with this week's apparent loosening of Credit conditions, there are great expectations for an impending revival in the securitization marketplace. The banks and Wall Street are praying. With an eye on California, I fear another ("jumbo") leg down in the ongoing mortgage crisis and an increasingly vulnerable economy. Another eye is planted on the hedge fund community, where I suspect we are only another market dislocation away from serious withdrawals and reinforcing liquidations.

One, if not the greatest, errors in central banking was committed back in 2002 — with Messrs. Greenspan and Bernanke at their respective strict and intellectual helms. They mistakenly reckoned THE bubble had popped. Together they set in motion an aggressive post-Bubble "mopping up" reflation, failing to appreciate that while the tech Bubble had burst THE Credit Bubble was poised for "blow-off" excess.

We are left today with an unbalanced Bubble Economy sustained only by ongoing and enormous Credit creation. Importantly, the Wall Street Risk Intermediation Machine is today gravely impaired, forcing the banking system to Balloon Bank Credit. This works effectively on a short-term basis, yet is an unfolding predicament. Credits to sustain a Bubble Economy are inherently highly risky (think CA mortgages or junk bonds) and it requires huge quantities of them. Bubble economies are replete with negative cash flow entities and others that become increasingly so as finance is curtailed and redirected. Today, the banking system is ill-prepared to play the role of lender of last resort for long. Moreover, the scope of required ongoing Credit inflation ensures dollar vulnerability.

An important aspect of my negative current view is the disconnect between unwavering marketplace confidence in the Fed's capacity to "reliquefy" and "reflate" and the reality of a limited arsenal and atypical lack of Federal Reserve control over unfolding developments. Importantly, Greenspan and Bernanke expended tremendous ammo in a historic reflation fight that, in the end, was a totally wasted cause. They misjudged and enfranchised the most profligate and wasteful Credit expansion in our history, while inciting a potent strain of inflation that now propagates largely outside of our control. They burned a major currency devaluation. A weaker dollar could have been a tool available to help soften today's much needed financial and economic rebalancing. Unfortunately, they used that policy card for a reflation that greatly exacerbated excesses and imbalances at home, while initiating global inflation dynamics much to the detriment of our citizens, economy and currency. We have today much greater financial fragilities, disastrous economic imbalances, and a feeble currency — whether the stock market chooses to discount it now or not.

Comments

[bailey]

Kuntsler's last line is classic, absolutely wonderful!

[Firozali A.Mulla MBA PhD]

Sir

On Friday the partner country of America was having the toughest time
in the ever friendship that was since years. Here it is. The North
Rock bank, the property bank had a huge quies from 6am to 2.pm and
there were frustrated customers to withdraw the cash as the bank
seemed to be sinking with the property market. Some one said that this
was not a problem, just the panic. But if I were there I would do the
same. After all it is my savings of the years.
Now let us look at exactly what happened.
The American dollar slipped and had the world gasping for the more
cash. You see the cash that was is now stashed in the farced it had
created by Colin Powel, Tony Blaire and company. Tony has left asking
Bush to hold the baby of the bleeding economy that too is sagging.
The dollar is at the lowest ebb on 16th September 2007 against all
currency. What is more there is a demo in the Washington about the war
in Iraq. Now if I see this in the TV. I have many thoughts running in
my mind. What is happening to the strong dollar that dominated the
world? The Senate is upset and the majors of the wars who are more
experienced then the president state," We are draining our money and
men if we continue. Look buddy we still have Katrina and others to
settle down in their residents, we have SEC not doing too good a job,
Afghanistan soldiers as per SKY TV seem to be having very bad time and
what is more they seem to be corrupted. The idea is to stay on in
Afghanistan and get rich by the Poppy crop and teach as less as
possible to the Afghan soldiers."
Sir with this how can dollar see the silver lining. In fact
WASHINGTON, Sept. 14 — Alan Greenspan, who was chairman of the Federal
Reserve for nearly two decades, in a long-awaited memoir, is harshly
critical of President Bush, Vice President Dick Cheney and the
Republican-controlled Congress, as abandoning their party's principles
on spending and deficits.

Sir I am but a small fry when the giants talk. I thank you.
Parents are too killers. I do not think so, but the Moral, the money,
etc baffles me.

If The Madeline case would have been in Agatha's hands may be the
Portuguese and the British would have given her the bonus. What a
farce about the mother and fatter killing then abusing the media. I
Thank you please publish this as a blog or comment. I write many.
Check me on Firozali a Mulla Yahoo.com
Sir:

The idea may not click to many Americans. The story is USA will have
to go to Iran. Here is the reason. Islam is very strong in Iran. Osama
blew the towers but this was because he has everything against
everyone. He is a Wahabi, an opportunist. He is neither Sunni nor
Shia. He was in Saudi and there he nurtures the hate for the Americans
after the Kuwait war. He was in America and kept on seeing the booming
economy then. The low response to his speeches in Islam countries and
tie Saudis to go against America and make him co operate with Tali9ban
and many Sunnis who were anti Saudis as the Saudis are the monarchs
and the heritage is passed on from the father to son. There is no
democracy. It is a hood winked democracy that America sees as all are
equal. They are not. In fact the 13th September papers said the Saudi
women are pressuring the Saudi government( King) to give them more
autonomy as the driving the cars etc is restricted to the men only.
Osama saw this is Hitler had seen against the Jews. Every Jew is a
clerk and every clerk is s Jew. He went to blow the twin tower to draw
attention to the world that there was someone powerful then USA.
Note that Wahabi is spearing in America, Bush administration has no
alternative but to go to the once Axis of Evil for help as Iran is
anti Wahabi. To put more clearly the Wahabi are Arabs Sunnis decants
but anti Monarch and they will do anything for money. This has spread
everywhere and the Pakistan is full of these Wahabi. In fact the
America is a problem not with Pakistan, not with Taliban but the
Wahabi.
They are secretive beads in hand Allah in the lips but the dagger in the eye.

Firozali A. Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa.

[Firozali A.Mulla MBA PhD]

Sir

I refer to the Financial Times (UK) of Saturday, August 27th Sunday 2005that has the heading “Greenspan warns successor: Future of asset prices worries Fed’s chairman,
Protectionist pressure threatens US economy; World’s top bankers listen to his speech.
I guess Alan has said this on this day and Dr. Bernanke may be in trying to shift in the chair of the Alan may not have heard all of this
However when I look at the article of this issue, I think Alan is right in going ahead with the writing of the book. If he proved himself so accurate on 2005, I guess I got to give him the credit for this.
The USA economy has shaken the world monetary system. The losses not the natural ones but the man made have divested the human lives to such a level that even if August job increase gives the little breeze to the already pale faces, the end is yet to come I guess.
I thank you
Firozali A.Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa

[Firozali A.Mulla MBA PhD]

Today
25th October I see the dollar dwindling in circles. There is no chance the dollar will come up now as the Far Eastern economies are bettering the American dollar not just on the currency field, but the skies see the Chinese and Russian satellites after many year . Do not know if we are back to the era of Mao like years but the dollar is definitely out for some time.
Seems bad but that is the fact American will have to live with. I think the downfall was mostly because of the Iraq war and no oil or no WMD. The oil has shot up to 90 but this should not worry the consumers. The reason is simple. We are talking of the CPI. This means what one commentator has said, American can spend a lot. The purchasing power therefore denotes the GDP or NDP. Oil at 100 also is cheap( although at this time all eyes are on Iraq and turkey borders, I guess this is a political maneuver too), and the fires in California have shifted all eyes not on oil but the growing China and India and the Iran shaking hands with Putin who agrees that Iran can have the nuke facilities.
This put the GDP off the scoreboard for now. WE are looking at the CPI and the money I have to spend at this time. Do I have enough, then why do I to worry about the GDP. What is more the globalization state we are a small village. Therefore, I can safely look at the other places not particularly mine and leave the GDP totally off my life

I thank you
Firozali A.Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa