As many of you may know, Alan Greenspan testified yesterday before a U.S. Congressional Committee.  As reported by The Globe and Mail (Canada’s principal national newspaper) Greenspan appears to be, aside from anything else, an honest man.  He is reported to have testified that:

“Something which looked to be a very solid edifice (a reference to the U.S. Banking System) and, indeed, a critical pillar to market competition and free markets did break down. … And I think that … shocked me.  I still do not understand why it happened.”

It strikes me that for Greenspan to say he ‘still doesn’t understand why it happened’ indicates naivety and a lack of street sense on his part.  Psychologists broadly believe that one’s value system and fundamental views largely are formed in the first five years of life.  Greenspan was born in 1926, an only child, and a young child during the years of the Great Depression.  Evidently of very high intellect, he seems (according to his writings in his recently published book ‘The Age of Turbulence’), largely to have been sheltered from hardship during those years.  To me, who grew up with wonderful parents but without a ‘silver spoon’, the answer to ‘why’ is obvious and should have been foreseen.  Broadly speaking:

•    individuals in this world act first and foremost out of self-interest;

•    people of like persuasions and value systems tend to ‘group together’, or in the case of business tend to pursue similar vocations; and,

•    personal greed ranks high for many people, and it doesn’t take a rocket scientist to know that ‘money managers’ broadly fit into that ‘greed’ category – which in my view is no more a slight on money managers than would the statement ‘It is in the nature of Cheetahs to run down and kill defenseless gazelles’ be a slight on Cheetahs.

How could Greenspan (presumably a ‘rocket scientist’) not have known this, and how could he now in good conscious say he doesn’t understand why what is now happening is happening – and then say (which he apparently did) that he does not think what is happening is his fault or that of his colleagues?  Even if he didn’t understand what might happen at the time he invoked his policies, he should not be ‘wondering why’ today with the hindsight he now has.  It may be, of course, that he indeed does understand ‘why’ but doesn’t want to admit he does.

In prior Posts on this Blog I have talked more than once about ‘Views from 20,000 Feet’ and the haste with which decisions are being made by the current U.S. Administration and its appointees (read Paulson and Bernanke).  I don’t know how ‘non-naïve’ and ‘street-smart’ either Paulson and Bernanke are.  Based on where Paulson has gotten in life I suspect he is not naïve and is very street-smart.  Bernanke, an academic, may (and I hope this is wrong) lack ‘real-world’ experience and hence fall more in what seems to be (based on Greenspan’s comments yesterday) the ‘Greenspan Camp’.

Greenspan invoked and monitored his policies over several years.  The current U.S. Administration is making what may prove to be momentous decisions in a very short time span with no opportunity to observe the results over a long period.  In my view they cannot possibly foresee all the possible consequences of their actions – thereby contributing to a current economic environment of increasing uncertainty.

Gold and the U.S. Dollar

For what it is worth, I find it interesting in what I consider to be an increasingly uncertain economic environment and falling U.S. and world stock markets that the U.S. dollar continues to strengthen against other currencies while gold futures (gold being an ‘uncertainty hedge’ have dropped significantly in price in each of the last few days and again this morning.  It is as if investors perceive the U.S. dollar and not gold to be the safe haven – a conclusion I find perverse.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. See Legal Disclaimer.

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