Wikinvest Wire

Greenspan: The danger of falling stock prices

Monday, February 08, 2010

The win by the Saints yesterday was something of an upset but, nonetheless, the graphic to the right that appears this morning in the "Meet the Press" section over at MSNBC is more than a little bit ironic in light of the predictions that former Fed Chairman Alan Greenspan and former Treasury Secretary Hank Paulson were making a few years back about the future of the economy and financial markets.

I haven't cued up the Meet the Press video just yet and may wait until later in the day as a glass of wine (or two) may be needed before it is deemed safe to watch these two together, but Bloomberg carried this report of the event in which more warnings were heard from the former Fed chairman about the dangers of falling stock prices.

Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall.

A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program. “It’s important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity.
It's surprising that Bloomberg writers Alan Bjerga and Vincent Del Giudice didn't see fit to include the seemingly mandatory disclaimers that have been included in stories about the former Fed chairman in recent years, something along the lines of, "Many blame years of easy money policies by Alan Greenspan for multiple asset bubbles over the last decade..."

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Daniel Korn said...

Such amazing hubris. Look Chairman Greenspan, you intentionally allowed the asset and equity markets to rise above their fundamental value after 9/11 because you were worried about the economy tanking.

Did you think that it was possible that they would stay above their fundamental levels for eternity? Of course not. It is not possible. Yet it was o.k. for the benefit of those rising markets to be felt on your tenure as "Maestro" at the fed, as long as the pain of the inevitable fall was felt after you could retire and collect speaking bonuses?

You need to return your Presidential Medal of Freedom. You may have though you were doing to right thing at the time, but you, though not you alone, have caused serious damage to tens of millions of Americans who had faith in you to protect their economic interests.

Anonymous said...

I've figured for a while that the government was keeping stock prices propped up (not directly, but a *wink wink* *nudge nudge* to the big banks in exchange for ditching mark to market, etc.) on the faulty belief that artificially propping stocks would bring the rest of the economy back up.
Unfortunately, like most 'supply-side' theories, it is just plain backwards. Bottom up is much sounder than top down.
The economy will only pick up again once people have jobs again, enabling d-e-m-a-n-d.
Luckily for most of these 'banksters' people have been convinced (thanks largely to 'Dr' Ron Paul) that this is somehow 'Keynesian' and therefore 'doesn't work', so the solution will be even more supply-side nonsense by cutting what little still manages to keep the economy on life support - gov't spending and 'entitlements' such as unemployment benefits extensions, food stamps, social security, the minimum wage, infrastructure spending, tax increases for the wealthy, etc.

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