Pick Your Favorite Analogy

If the last week is any indication of what's in store for the rest of the year, the world may have a severe case of Greenspan-fatigue by the time his book tour concludes this fall.

Not only do his recent musings appear to be in great demand and widely reported, but he may just be getting warmed up to do the bidding of his publishers.

Maybe he thought the initial printing was too small and set out to generate some early buzz - to show that he can still command attention and move markets.

He'll always command attention here.

Thoughts that the name of this blog would begin to lose its relevance as 2007 progressed have quickly subsided.

As for the recent spate of comments about recession probabilities, carry trades, and a number of other topics, the analogies are beginning to flow freely from the mainstream media.

The star quarterback who graduated last year, but who continues to show up at games yelling loudly from the sidelines has been a popular one here.

From the Financial Times Alphaville blog comes a new one from Philippe Bonnefoy, director of the Cedar Fund, a fund of hedge funds:

“[Greenspan] is not running the aircraft, but he’s still in the plane, and his comments make one pause for thought. He’s not a scaremonger.”

Now seems as good a time as any to expand on the Paulson-Bernanke imagery also cooked up here - the one where Hank is up front driving the car while Ben sits in the back seat with one of those PlaySkool steering wheels. In the updated seating arrangement, Alan Greenspan is in the trunk poking Ben through the back seat and yelling loud enough that others can hear.

Of course getting poked in the back may just be part of the job, as evidenced by Paul Volcker's numerous comments in recent years, one of which appears on the right sidebar of the main page:

"There's a 75 percent chance of a financial crisis in the next 5 years."
- Paul Volcker, 2004

Uh oh.

Mr. Volcker's 2005 commentary "An Economy on Thin Ice" probably didn't sit well with the former Fed Chairman, just as the former Fed Chairman's words are probably not welcomed by the present one.

Or are they?

In an interesting take on that subject, Chris Farrell of BusinessWeek suggests that Alan is actually helping Ben.

Of course, I don't know for sure, and neither Greenspan nor Bernanke is talking about their relationship. Yet I bet Bernanke is mouthing a silent thank-you to his predecessor. Greenspan just made Bernanke's job a bit easier.

The reason lies with a four-letter word: risk. Pension funds, hedge funds, private equity pools, and other investors are scouring the globe seeking higher returns ... Bernanke and the other Fed governors have crisscrossed the country openly worrying about excessive risk taking and investor complacency, to no avail.

Maybe investors will pay more attention to Greenspan. In the speech where he talked about recession, he also said: "We have extraordinarily low risk premiums now. Risk is no longer perceived as major risk, at least as it was in years past, and that, I must say, I find disturbing."

No, investors probably won't heed this warning - more likely they'll be emboldened.

Yesterday, the former Fed Chairman told Bloomberg that there is a one in three chance of a recession - an assessment that is at odds with the current Fed Chairman's soothing words before Congress not long ago.

The apparent second-guessing of the Bernanke Fed's economic view by its former chief risks adding to the volatility and undermining the current chairman's efforts to establish his authority in the markets.

Mr Greenspan on Tuesday told Bloomberg he was "surprised at this recent episode". He said: "I was aware of the problem that if I stayed public I could make it difficult for Ben. For the most part it has worked. I was beginning to feel quite comfortable that I was fully back to the anonymity I was seeking."

Comfortable with the anonymity he was seeking? Who's he trying to kid? Surely he misses swaggering up to Capitol Hill to deliver Delphic messages to elected leaders who would then fall quickly under his spell. He probably misses these encounters more than anyone could possibly imagine - he didn't do that job for 18 years for the money.

And today, CNN reports that the yen carry trade has been "put on notice", as Stephen Colbert might say (better than the more severe "dead to me" admonishment, but still not good). That might prompt a little more selling in the days ahead.

The carry trade in which global investors have borrowed cheaply in yen to buy higher-yielding assets elsewhere has got to turn around, said former Federal Reserve Chairman Alan Greenspan Wednesday.

Speaking at a trading technology conference in New York, Greenspan said the yen carry trade is still going strong, but "at some point it's got to turn".

When does that book tour begin?