Greenspan

by Larry Levin

Several current and former financial regulators were on the Hill today getting grilled by Congress. One of the men in the hot seat was EZ-Al (easy monetary policy), or Alan "bubbles" Greenspan if you prefer. While being questioned, EZ-Al did his best impression of Bart Simpson by saying - I didn't do it.

With all of EZ-Al's denials, it is plain to see that he is in full-frontal legacy defense mode, and he's not doing a particularly convincing job. In one of Greenspan's comments he said - those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief. In fact, he was shocked that the problem became as big as it did. He went on to say a once-in-a-century credit tsunami has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.

But this is where I have a problem with Greenspan. He just doesn't get it. His micro-(mis)management of interest rates is the problem. This was not a once-in-a-century credit tsunami that could not be forecasted. Many, many people did - INCLUDING ME! Who else saw the so-called once-in-a-century tsunami coming? Off the top of my head I can name the following, which is certainly not a complete list; Bill Ackman, John Paulson, Martin Weiss, Marc Faber, Jimmy Rogers, Bill Bonner, John Williams, Peter Schiff, John Mauldin, "Mish" Shedlock, Jim Chanos, Bill Flekenstein, David Einhorn, and Ron Paul.

Hmm, it seems odd that all of us fine men saw it coming a long time ago - yet Greenspin didn't. Moreover, he claims nobody could have predicted it because it was a once-in-a-century event, and we haven't been alive long enough to have seen all of the data. But anyone with a high school education could have told Greenspin himself that dropping interest rates to negative levels and then allowing unscrupulous banks to lend to deadbeats is a bad idea.

I'm shocked, shocked, to find gambling here - Captain Renault, Casablanca.

But Greenspin still misses the boat. HE, or more accurately the FEDERAL RESERVE, is the main problem. Central Banks have been responsible for every boom and bust in every country on planet Earth since their inception. The micro-(mis)management of interest rates plus fractional reserve banking is the root cause of it all.

But the Federal Reserve (government) isn't solely to be blamed. The GSE's (FNM/FRE) guaranteeing mortgages caused massive malinvestments. Government approved rating agencies that get paid by the sellers of bonds was a bad idea from the beginning. And let's not forget the mafia-like intimidation that served to persuade loans to worthless borrowers via the Community Reinvestment Act (CRA).

All of this was brought to you by your meddling Congress. Oh, there was plenty of government oversight - or should I say extortion?

Wikipedia writes - The Community Reinvestment Act [CRA] ... is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods ... CRA regulations give community groups the right to comment or protest about banks' non-compliance with CRA. Such comments could help or hinder banks' planned expansions.

The meaning of these words is that the Community Reinvestment Act gives the power to community groups, to determine in an important respect the financial success or failure of a bank. Only if they are satisfied that the bank is making sufficient loans to borrowers to whom it would otherwise choose not to lend, will it be permitted to succeed. The most well-known community group is ACORN.

Part and parcel of the environment that has made an act such as the CRA possible, is threats of slander against banks for being racist

In short, our current problems and preposterous so-called cures can be blamed on government meddling (esp. the Fed) and the cult-like adherence to Keynesian economics. Since EZ Al "bubbles" Greenspan is up to his eyeballs in both, one cannot look to him for either an honest explanation, or a remedy.


Previous Day's Trading Room Results:

Trade Date: 10/23/08

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 8:30am at 901.75 = -2.00 (1 lot)

2) VA buy @ 11:15am at 900.50 = -1.75 (1 lot)

3) Algorithm positions (8)...combined total...-0.25

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) Sell @ 8:10am at 116.220 = -2.5 (1 lot)...total...-2.5



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