Tuesday 21 July 2009

A Review of the First Half of Bailout Nation

by cactusA Review of the First Half of Bailout NationBarry Ritholtz is on my mind. I started reading Bailout Nation, Barry Ritholtz's book (with co-author Aaron Task) about the mess we are in, and I am about half through. Its an easy read, and yet very informative, even though I have been after that the whole mess for a while (and reading Ritholtz's blog). The book ties together a lot of what look like dissimilar facts into a coherent and plausible story that satisfactorily fits the facts better than any alternative presentation I have read. I only really have two quibbles consequently far - one is that the book repeats \a a small number of points a number of times. Another is that it seems to me that the book does not ascribe sufficient, er, richness or feel to the behavior we saw in Alan Greenspan. It assumes that Greenspan was little additional than a awkward buffoon behaving in a self-contradictory fashion, a Randian free marketeer whose primary objective was to keep even-handedness prices up. I believed all that about Greenspan before I read the book, but Ritholtz and Task do a fine job of making the case to those who have not been after that Greenspan's antics all that closely. The problem, though, is that Greenspan has previous motivations that should be equally clear from the very information that the book presents.For instance, in pages 84 and 85, the book indicts that the collapse of the NASDAQ "prodded the Federal Reserve into action. Greenspan began unparalleled mop-p operation after the bubble popped.... In January 2001, the federal Reserve started an extraordinary rate-cutting process, one for which there is negative comparison." At the bottom of the page is a table showing how the Fed complete 11 rate cuts in 2001, dropping the FF from 6.5% to 1.75%. Over the subsequent pages, we are told about how the Fed then proceeded to keep rates extraordinarily low for years... and we are told how what the degree to which the Fed acted and reserved rates down was unparalleled in the Fed's history. All true, from Greenspan's objective of propping up equities to the rate cuts, but there is one thing... the NASDAQ bubbled popped in March of 2000. Greenspan only sprung into action in January of 2001. The awkward buffoon full of self-contradictions could have sprung into action at any point, but he chose not to do consequently until it was evident that the after that President was going to be an important person he thought he decided with ideologically, an important person he felt was a fellow traveller.Ritholtz has used the term nonfeasance (both in his blog and in the book) to describe the behavior of entities like the Fed (and the SEC and the CFTC and the rest of the clowns) toward regulating the financial sector. That is, those regulators chose to look the previous way rather than step in and stop the Wall Street circus from running amok. But Ritholtz is only partly right about the behavior of the so-called regulators, and most especially Greenspan's Fed. See, there was nonfeasance until GW took over. After that, there was antifeasance. The cops that had before looked aside while a gang of their buddies broke into stores in the middle of the night graduated to driving the getaway vehicle and knocking rotten rival gangs. And Greenspan, at least, seems to have graduated about the time we got a President who was singing his tune. I personally do not see that as a coincidence. __________________________________by cactus
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