A Review of the First Half of Bailout Nation
Barry Ritholtz is on my mind. I started reading Bailout Nation, Barry Ritholtz’s book (with co-author Aaron Task) about the mess we’re in, and I’m about half through. Its an easy read, and yet very informative, even though I’ve been following the whole mess for a while (and reading Ritholtz’s blog). The book ties together a lot of what look like disparate facts into a coherent and plausible story that nicely fits the facts better than any alternative presentation I’ve read. I only really have two quibbles so far – one is that the book repeats \a few points a number of times.
Another is that it seems to me that the book does not ascribe sufficient, er, richness or texture to the behavior we saw in Alan Greenspan. It assumes that Greenspan was little more than a bumbling buffoon behaving in a self-contradictory fashion, a Randian free marketeer whose primary goal was to keep equity prices up. I believed all that about Greenspan before I read the book, but Ritholtz and Task do a fine job of making the case to those who haven’t been following Greenspan’s antics all that closely. The problem, though, is that Greenspan has other motivations that should be equally obvious from the very information that the book presents.
For instance, in pages 84 and 85, the book indicts that the collapse of the NASDAQ “prodded the Federal Reserve into action. Greenspan began unprecedented mop-p operation after the bubble popped…. In January 2001, the federal Reserve started an extraordinary rate-cutting process, one for which there is no comparison.” At the bottom of the page is a table showing how the Fed made 11 rate cuts in 2001, dropping the FF from 6.5% to 1.75%. Over the subsequent pages, we are told about how the Fed then proceeded to keep rates extraordinarily low for years… and we’re told how what the degree to which the Fed acted and kept rates down was unprecedented in the Fed’s history.
All true, from Greenspan’s goal of propping up equities to the rate cuts, but there’s one thing… the NASDAQ bubbled popped in March of 2000. Greenspan only sprung into action in January of 2001. The bumbling buffoon full of self-contradictions could have sprung into action at any point, but he chose not to do so until it was evident that the next President was going to be someone he thought he agreed with ideologically, someone he felt was a fellow traveller.
Ritholtz has used the term nonfeasance (both in his blog and in the book) to describe the behavior of entities like the Fed (and the SEC and the CFTC and the rest of the clowns) toward regulating the financial sector. That is, those regulators chose to look the other way rather than step in and prevent the Wall Street circus from running amok. But Ritholtz is only partly right about the behavior of the so-called regulators, and most especially Greenspan’s Fed. See, there was nonfeasance until GW took over. After that, there was antifeasance. The cops that had previously looked aside while a gang of their buddies broke into stores in the middle of the night graduated to driving the getaway car and knocking off rival gangs. And Greenspan, at least, seems to have graduated about the time we got a President who was singing his tune. I personally don’t see that as a coincidence.