Pete Kendall's Socio Times: A Socionomic Commentary

September 11, 2007
Want a Scapegoat? Hang the Maestro
 Alan Greenspan is, if nothing else, the Robert Ludlum of central bankers.

Like the thriller writer famous for the portentous titles of his books, the former Fed Chairman has a gift for pithy cliffhangers. In 1996, he gave warning of “irrational exuberance”. Next week, he will publish his memoirs, aptly titled The Age of Turbulence.

This is a time of turbulence. The equity markets cannot make up their minds and the credit markets have lost their appetites. The question is whether Mr Greenspan has been not merely an observer of the age but the root cause of the recent instability.

Anxious bankers are looking for a scapegoat. Some blame Mervyn King, the Governor of the Bank of England, claiming that he does not appreciate the scale of the crisis. Others worry that Ben Bernanke, the Fed Chairman, has not done enough and is in danger of leaving millions of American homeowners in the lurch. But investors could do worse than reappraise the record of the man once dubbed The Maestro.

Just two years ago, the annual gathering of central bankers in Jackson Hole was devoted to a celebration of the career of Mr Greenspan. This year, there was no such chorus of approval.

Increasingly, Mr Greenspan is seen as having created the culture of cheap money that fed the financial markets’ borrowing habit. Critics say that the Greenspan boom was defined by unprecedented leverage made possible by a decade of low interest rates.

But as the former Fed governor heads out on his book tour, it seems that the end of his story is still being written. If Ludlum could, he would call it: The Greenspan Reputation.
The Times [of London]

September 2007
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Emerging Downtrend Recasts Greenspan's Public Image
By: Pete Kendall, September 13, 2007

The divide between the Fed chairman’s popularity and central banks’ historic post-mania impotence is a recipe for grand disappointment. Look for his image to fall hard.
The Elliott Wave Financial Forecast, January 2001

fed hedThe search for a scapegoat begins.
--Steve Rogers

As the quote above illustrates, EWI called for an  eventual reversal in Greenspan’s public standing at the front edge of the bear market in 2000/2001. By the end of the initial leg down in 2002, these headlines show that the tarnishing of the Greenspan legend was appearing:
Greenspan the Enabler
Boston Globe, November 19, 2002

Fed Chairman Faces Criticism for Past Decisions
The Christian Science Monitor, October 15, 2002

Greenspan Defends Handling of Markets
The Associated Press (Boston Globe) August 31, 2002

Give Greenspan's Fed Its Share of the Blame
The Washington Post, August 13, 2002

Of course, the move to a new all-time high in the Dow Jones Industrial Average returned Greenspan to the universal popular acclaim he attained back in 2000. In recent weeks, however, Alan Greenspan is growing horns. The quick swing back to disfavor is a sure sign that a longer-term decline is back in place. Ultimately, the shredding of Greenspan’s reputation should be far more damaging than the initial tears of 2002. Greenspan’s essential irrelevance is revealed by the difference between reality and the title of his forth coming biography, The Age of Turbulence. Compared with the disruptions faced by just about any other Fed Chairman and especially those emerging for his predecessor, Greenspan’s tenure was one long day at the beach. The 2000-2002 bear market was just a small taste of the impotence the Fed faces in the next decline. For more on “central banks’ historic post-mania impotence,” see the Special Section in this month’s issue of The Elliott Wave Financial Forecast.

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