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24 of 27 people found the following review helpful:
4.0 out of 5 stars
Whatever financial and political elites want, July 13, 2006
This review is from: Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars (Hardcover)
The capitalism described by Adam Smith in 1776 has almost nothing to do with the workings of 21st century corporate, and largely financial, capitalism driven and controlled by huge players and institutions, like the New York Stock Exchange. The little guy instead of being the essential player and equal of his fellows postulated by Smith is virtually helpless against these monoliths. But of course, these actual workings are not really talked about, even denied by capitalist propagandists. The Federal Reserve System is supposed to contain some of the excesses of corporate capitalism, not the least of which is maintaining appearances of integrity. This book is a statement on how well Alan Greenspan, the chairman of the Federal Reserve System from 1987-2006 dealt with economic issues under his purview, especially the stock market bubble from 1996-2001.
Alan Greenspan and other members of the FOMC knew that the valuation of the stock market was out of control as early as 1996, Greenspan even making a speech where the "irrational exuberance" of the market was alluded to. But he was unwilling to follow up on his observations. Instead, Greenspan actually lowered interest rates and did not increase margin lending requirements for buying securities, which fueled the bubble. The author makes it perfectly clear that Greenspan was a political player in Washington, even to the extent of compromising his duties as chairman of the Fed. Squeezed by the Clinton administration and by Congress, Greenspan continually lent credibility to the incredible run-up of the market, engaging in a lot esoteric discussion about a new economic era, etc.
There is a distinction made between the impact of inflation in essential goods and services versus that in financial instruments with some validity, especially in so far as the financial instruments do not have broad impacts. But that is now hardly the case with the stock market. The American public has actually been forced into the stock market with the evisceration of pension plans and the establishment of 401K plans that are heavily weighted toward stock purchase. Actually few Americans have the wherewithal to be individual stock purchasers operating through brokers; they are dependent upon mutual fund managers navigating market forces. The author chides Americans for flooding the markets with expectations of vast profits without acknowledging how few options are actually available for those having 401K funds deducted from paychecks.
The author performs a service in taking the luster off of the Greenspan shine; he became more of a political operative than a central banker. But even had Greenspan moved to contain the stock market bubble, larger issues remain regarding the stock market and its impact on even average-income Americans. Legislation is absolutely required to limit the speculative nature of the stock market and to emphasize dividends based on corporate earnings. The idea that someone should be able to cash in on a grossly inflated financial instrument that has little connection to a viable business entity is absurd and is harmful to the economy and society. Furthermore, 401K plans are much too limited. If corporate America wants to abandon its employees in terms of retirement income, employees should have far more options and devices for saving money. For example, why is it that the ordinary individual cannot tap directly into tax-free municipal and corporate bonds? Of course, the answer is that 401K money is the plaything of securities experts and their elaborate computer systems. A solid retirement system is the last concern of financial elites, who, of course, have vast sway in the election of politicians who, in turn, are more than willing to maintain the status quo.
Basically, the problems with American, corporate capitalism are far greater than a Fed chairman pandering to politicians and other elites. It would be wrong to maintain that only had Greenspan performed his required duties as a central banker that all would have gone well for the average American in his or her contact with the playground of the rich, the various stock exchanges. The author also discusses the current housing bubble, fueled ironically by the low interest rates instituted after the stock market bubble collapse, and the massive trade imbalance. The book is definitely informative as far as it goes.
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11 of 11 people found the following review helpful:
4.0 out of 5 stars
The Human Element, June 29, 2006
This review is from: Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars (Hardcover)
If you want the full picture of the great dotcom debacle, you can get pretty close with four books: 'Origins of the Crash," by Roger Lowenstein; "The New Reality of Wall Street," by Don Coxe; "Extraordinary Popular Delusions & The Madness of Crowds," by Charles Mackay; and now "Bubble Man," by Peter Hartcher, to round out the bunch.
Lowenstein looks at the crash through the lens of corporate excess, tracing a rampant culture of greed and deceit to its "origins" of many years earlier. Coxe gives insight into "triple waterfalls"-the sweeping market transitions, typically measured in decades, that define capital migration. Mackay examines the lunacy that ensues when the average investor gets swept up by hysteria, drawing timeless lessons from the adventures of John Law.
And now Hartcher offers up the final puzzle piece, laying blame at the feet of the man who saw the great bubble develop, privately acknowledged its presence, decided to do nothing, pumped it further, cheered it on, and then refused to take responsibility when it burst: Alan Greenspan.
The opening chapters of Bubble Man are mainly a historical account of the big crash and the causal events leading up to it. You may find it a bit late for yet another postmortem, as I did, but fortunately the details go quickly and the telling was nicely done. Just as I was about to write the book off as another mildly interesting but forgettable read, Hartcher took up the subject of Greenspan the man, the operator, the human being... and from then on I couldn't put it down.
Before reading this book, I had a minor inkling but no real grasp of how brilliant a politician and truly connected a player Greenspan actually was. In terms of subtle calculation, ego manipulation and natural alignment to power, he really was a "Maestro" of the highest order. Greenspan's subordinates were in awe of his mind-boggling command of policy minutia, inexhaustible reserves of patience, and superhuman networking skills. In Greenspan's defense, nor did I previously grasp how much political pressure a Fed Chairman is actually under. The notion of Fed independence is laughable, an idealistic notion crushed by the realpolitik of the real world.
Detective-like, what Hartcher does best is skillfully reconstruct the scene of the crime... the play by play of the Chairman's moral downfall. We retrace the painful missteps that Greenspan learned from early in his career, and from there observe how he shaped and crafted his political life into an exquisite work of art. The emotional pinnacle of the book is the "irrational exuberance" moment: the point at which Greenspan must decide whether to fulfill his duty as leader and protector, and risk sacrificing all he holds dear, or preserve popularity at the cost of his soul. We know which path he chose. If Hartcher's account were made into a movie it could be an Oliver Stone docu-drama, with all the elements of a Greek tragedy and the conflicted Chairman at center stage.
As Bubble Man demonstrates with great attention to detail, the brilliant Maestro turned out to be a coward. In a job that required backbone above all, Greenspan failed us. (Though we the people, by way of our elected politicians, first failed him.) To make things worse, once the decision to sell out was made, all sense of propriety went out the window. Greenspan expressed bubble concerns as early as 1996, but later denied those concerns completely. Instead of providing sober adult supervision, he cheered Wall Street's madness from 1996 on. Instead of encouraging thoughtful discussion at policy meetings, he neutered debate as much as possible. Instead of trying to maintain political objectivity, he cut implicit deals and grew closer to the White House with each passing year. By electing to go with the flow when he should have been fighting it, this banker's banker wound up a rock star, an economic hero "so square he was cool," and to those Wall Streeters who made millions from his easy money policies, a god.
Greenspan's eventual bitter defense--that bubbles cannot be spotted in advance--was self-serving, self-contradicting, and something he probably did not believe himself. His successor, Ben Bernanke, has inherited an unbelievable mess--one that is probably too big to be cleaned up. Hartcher's clear-eyed account, and others to follow, will hopefully inform history and help set the record straight on the Bubble Man's true legacy.
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12 of 14 people found the following review helpful:
4.0 out of 5 stars
Greenspan's Legacy!, July 15, 2006
This review is from: Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars (Hardcover)
Since 1925 the average value of all America's shares has run 55% of GDP. Just before the 1929 crash it reached 81% - the highest level until 9/95's 82%. Then, in March of 2000 it broke through 183%. Meanwhile, from '97 to 2000, as stock prices rose 67%, total corporate profits fell 6%. (As for the myth that most Americans own lots of stock, in '98 the Fed found that the richest 20% owned 96% of all stocks.) Part of the problem was analysts - especially those tied to investment banks; corporations also contributed by smoothing earnings, stretching GAAP, ridiculous growth assumptions (eg. Internet volume would continue to double every 100 days), and even illegal accounting. But Greenspan was the biggest single problem (other than investors themselves who ignored the fact that there was a steady worsening in every financial ratio).
In December of 1996 he spoke of "irrational exuberance" in the stock market, creating stock drops around the world, including 144 in the DJIA. The subsequent outcry within Congress, and the recognition that President Clinton didn't trust him, led Greenspan to lose interest. (Experience convinced him that the Federal Reserve's independence was safe when either the President or Congress was upset - danger lurked when they both were.) Thus, instead of raising interest rates or margin limits, he basically did nothing, though staff forecasts began to incorporate expectations of 20% drops in the stock market. Making matters worse, Greenspan also endorsed the euphoria, attesting that we were in a "great historical transformation" with the Internet.
A second, similar bubble (housing) began prior to the market crash in 2000. In early post-WWII years the national housing stock was worth 60-70% of GDP; in '81 it hit 100%, and 140% in '04. It still is raging.
Subsequent to the 2000 crash, Greenspan has made a number of public exculpatory remarks - however, reviewing his private remarks within Federal Reserve Board meetings reveals obvious contradictions.
Greenspan has now left the Federal Reserve, but we are left with the new housing bubble, a stock market that still greatly exceeds historical ratios vs. GDP, a belief by many investors that stock and housing prices will continue to inflate (creating new bubbles), and the generally unrecognized problem of long-running deficits in the Federal government and our foreign trade. While "Bubble Man" is generally sympathetic to Greenspan's political plight during his tenure, it also makes clear that his lack of courage makes him primarily responsible
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