Alan Greenspan– From Washington to Wall Street
What’s wrong with this picture? A couple of weeks ago it was widely reported that Alan Greenspan, who, in case anyone forgot, was the chairman of the Fed prior to Ben Bernanke and the man behind things like ‘irrational exuberance’ and the housing bubble, has joined the hedge fund Paulson & Co. as an adviser. Paulson & Co. is best known as the fund which made billions being short the sub-prime loan market, a great trade which I respect. A company statement asserted that the contract with Greenspan was exclusive. Mr. Greenspan has recently signed similar agreements with Pacific Investment Management Corporation (PIMCO), a bond specialist, and with the German banking giant Deutsche Bank.
Two days ago, on January 24th, during one of the most volatile trading weeks in market history and in the wake of an unprecedented Fed emergency rate cut, Alan Greenspan announced to the world that he’s worried that an “inevitable’‘ global recession will create a backlash that forces countries to retreat from worldwide markets. “Globalization has been extraordinarily valuable,” Greenspan said in a speech in Vancouver sponsored by BMO Financial Group, also known as the Bank of Montreal. “I’m concerned that if we get into some form of global recession, which after this extraordinary boom is inevitable at some point, that there will be a very significant retrenchment in the opening up of markets.”
OK. Alan Greenspan moves markets. He is the pied piper, the master of economic verbal obfuscation, the man whose every word captivated financial analysts and generated interpretive angst for years. Now, Alan Greenspan is a trader. He speaks his book– he is obviously short, and he is in the unique position of being able to front-run his own public comments.
I guess there’s nothing wrong with that, except that something about Alan Greenspan selling out, just like everyone else in America eventually does, makes me feel a little soiled and a little less respectful of the powerful people who cash in very big after having been stewards of the public trust. Perhaps Alan Greenspan’s comments are now equivalent to just another rant from Jim Cramer.
See, I’m feeling better already and will soon forget about this silly notion that there is some dignity in public service that should continue after the completion of that service. But that’s just me, and I’m an idealist, so I guess it doesn’t matter– or does it?
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I am a venture capitalist focused on investing in Security, Cleantech, and Digital Media. I have a strong interest in public policy issues and advocate public-private collaboration to protect our nation's critical infrastructure.
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February 1st, 2008 at 12:04 pm
Great post, Pascal. Your comments reminded me in some respects of Ben Stein’s column in this past Sunday’s New York Times (Can Their Wish Be the Market’s Command?), in which Stein wrote about traders making money by moving the markets in the direction that they want. (Stein’s column was published the day after your post.) Of course it is no surprise that this goes on, but your description does Stein one better by pointing out that the practice is especially unseemly if the guy making the market move has that power primarily (if not entirely) because he was placed in a position of public trust.