Don't Be Distracted By Greenspan-Blaming

I believe it was noted late 20th century philosopher George Louis Costanza who said "Jimmy Crackcorn and I don't care."

I find myself not caring about all of the ink that has been devoted to blaming Alan Greenspan for the mess we are now in.

It's not about agreeing or disagreeing, but more about this is where we are now, how long before things fix themselves (some would say they already are starting to fix themselves) and are we at a point where we should still be thinking more about defense and protection or about being fully invested?

We can learn and benefit in future cycles from what happened on this go around. I wrote an awful lot about the abnormally sloped yield curve as an indication for trouble coming. For me and anyone else familiar with the yield curve we can learn that it works as an indicator of trouble coming (but does not allow for quantifying the trouble). For people not previously familiar, they have learned about something that will matter again in the future.

The value of knowing why and who is to blame will be of interest to many people, but is unlikely to make you a more knowledgeable investor.

So if the debate (if it even is a debate) about blaming Greenspan is a waste of time then why write to say it is a waste of time? As you study and manage your portfolio it is easy to get sidetracked or distracted by things that have no baring on whether or not you will have enough money when you need it.

Comments

[punk_ash]

oh right, so the only thing that matters is the money in your portfolio. You are one good citizen, Bravo (as in sarcasm)...

[icandoitdon]

yeah, let the regulators of our economy lurch from one bubble-building blunder to the next.

this guy must be a damned genius if he thinks our transition from world leader to bananna republic will not affect his portfolio.

[RogerNusbaum]

punk_ash, my job is to make the money in my clients portfolios the top priority, exactly right. if you care more about the academic pursuit of how much blame goes to Greenspan so be it.

icandoitdon, where did I say portfolios and the economy won't be impacted by this? an exploration of just how much Greenspan or anyone else created this mess is a look in the rear view mirror and does nothing to help you manage your portfolio in the future.

[Xyrus]

Punk_ash and Icandoit exemplify one of the problems with Americans at large: There always trying to find who screwed up.

Who screwed up is a lot less important than how to fix the problem and prepare for it if it ever rears it's head again.

In fact, this problem extends beyond the current Greenspan Blame game. This same problem exists in our government as well. Everyone is so focused on finding out who to blame that nobody spends anytime fixing the problems.

I don't care if it was Greenspan or your grandmother. Find the problem, fix it, and MOVE ON.

~X~

[icandoitdon]

roger....

my objection to your article had more to do with what you implied rather than what you said.

the federal reserve does not exist to serve wall street yet that's exactly what it's becoming...a tool of wall street. this has worriesome consequences for the future of our economy.

most of the problems associated with the turmoil in the financial system over the last 9 months is associated with the unrestrained use of leverage in the private sector, and the unrestrained and unregulated use of ever more complex financial instruments in the financial services industry which are neither quantifiable or identifiable in the economy as a whole. the fed didn't create this environment alone but it played a big role in encouraging it and it having become embedded in the american culture.

if wall street comes to believe that the fed is their backstop because they are "too big to fail" because of the domino effects caused by the dysfunctional use of leverage and little-understood use of financial instruments, what does it suggest about their willingness to accept the future consequences of their own risk taking? to me it suggests that they will view the fed as their "partner" with the deep pockets. anyone who believes otherwise might be interested in a beautiful bridge i have for sale in san francisco.

it's not just wall street that concerns me either. what message does it send investors to know that the the federal reserve will always step in...without fail....to support the stock market from not just the stupid decisions made by individual financial firms or industries, but from the business cycle itself? to me, it sends the message that investors need not worry about financial risk because the government has got their back...whether protecting them from the mortgages they can't afford or from any significant decline in their stock portfolios.

this is worth repeating: in a capitalistic economy, protecting wall street and investors is not the fed's job. failure is as normal as success but it is being treated like an anomoly. the fed is trying to rig a game that, in the end, is too big to be rigged. we are likely to revisit many of these same problems in coming months and years. we'll have the fed to thank for it.

the fed is a more powerful organiation than the u.s. congress, which is most famous for doing nothing. the fed actually acts...it makes important decisions all the time, and when they screw something up it can have disastrous consequences for the economy and the millions direcly affected by it. this is why it's important to disect their decisions and call them on the carpet when their stewarship proves less than helpful as i believe theirs has.

your flippant "jimmy crackcorn and i don't care" comment does nothing but kick the can down the road.

[icandoitdon]

xyrux....

"find the problem, fit it and move on."

how simple. i wish i'd have thought of that. why don't you send that one on to bernake. and don't forget to copy that child in the white house.

[punk_ash]

Roger,

Greenspan and the likes have robbed us of out savings, but we can not go to court for that, the $s that we have saved are worth crap, these fools want us to be 100% vested at all times in the speculative markets. Now you tell us to forget about them. What kind of an environment we are living in where this ass clown Greenspan is making 10 million or so for a lousy speech. I have never seen anyone use more fancy words than him. This is not 20/20, I knew this was coming when every guy I knew was buying houses that were 6-10 times their annual earnings.

[sivere]

The problem is that Congress let the Fed have their authority. They allowed cult-like figures to have way to much influence in the markets. It's time to

TakeBackTheFed.com

[nukldrager]

Roger, if I read you right, you are saying quit crying in your soup. Greenspan is the Hercules of obfuscation. Politicians love obfuscation. Why do you think he retained the (non-elected) top job in Washington for 19 years? If your the president of a company for 20 years and the company is going to go belly up immediately after you leave unless you can get a $30 billion loan from your uncle ... you don't look so good, no matter how well you can speak.

[nukldrager]

sivere... We've never had the Fed. Constitutionally, Congress is the only entity that can legally print money. If we had 485 lawyers arguing about fiscal policy, yikes! The Fed is the central bankers third swing and a hit after two misses. Jefferson's nightmare for America. If the government was smart they'd come clean about the Federal Reserve Act, and then fool us with more fancy rhetoric into thinking we can have a say about our banking system. You know, like we have a say about our health care system, energy policy, education, tax code, etc. Democracy seems like the inheritance that our clever uncle was able to finesse away from us because he knows the estate lawyer.

[RogerNusbaum]

nukldragr (great moniker BTW), I think I am saying focus on where you are going and try to figure the best way to get there. Anyone identifying with the comment about being robbed I do feel for but when faced with adversity how do you respond. anguishing over a bit of recent history does nothing to help your future and it does not increase your odd for success. I started writing a few years ago about an abnormally sloped curve bringing some sort of trouble. to me that is a market thing that did matter this go around and more importantly it will matter in the future. i think that sort of history is far more important than devoting 85% of the blame to Greenspan or 100% or some other figure.

[Avl Guy]

Roger, you’re admirable in your efforts against the incredible headwinds of "emoting" that has swept over the airwaves, print, and blogdom since the credit crisis became un-ignorable last August. The markets have always had a huge element of emotion (testosterone, blah blah) in them; they are not purely quantitative & analytical beasts with likewise participants.
You strike me as being part of the minority who are emotionally disciplined, and as Dr. Phil would say, who just don’t get much of an emotional kick or benefit from venting, ranting, finger-pointing and pushing the envelope on the blame-game.
But lots of people do get both a high and a sense of relief by doing that.
But as you noted, at the end of the day, that behavior doesn’t fix any problem. In this case, it doesn’t make them better traders or investors. Nor does it prepare them better for the next challenge. But it sure is a relief/release for them, ain’t it?

I expect the emoting to continue...but, because I think the deleveraging is far far from over...and because there's evidence this recession may indeed be a long ‘L’ or a double ‘W’ (depending on geography & economic class & profession) ...there will be sufficient time for many people to travel the path of the 7 Stages of Grief over what was 'lost' as well as grief over what many feel they 'lost' but which they never actually 'owned'. The seven stages of grief for sufferers will ascend over time: Shock or Disbelief, Denial, Bargaining, Guilt, Anger, Depression, Acceptance and Hope. Not everyone is at the same stage..and different ones travel at different paces and sequence order for #2 thru #6.
By 2012, you will probably be tired of telling people to be disciplined and focused. Maybe even by 2009