Winston Churchill once said "History will be kind to me, for I intend to write it". So he did, and so, mostly, it has. Former Fed Chairman Alan Greenspan, now doing the chat show circuit to promote his memoirs ("The Age of Turbulence"), is unlikely to be so lucky.
I met "the Maestro" a couple of times, before he was famous, and was never a subscriber to the cult of personality that grew up around him. His halo began to slip noticeably soon after he quit the Fed Chairman's role at the start of 2006, and undermined his successor, Ben Bernanke, in a series of ill-judged (but doubtless well-rewarded) speaking assignments even before Bernanke had had a chance to organise his pencil tray. Maybe Greenspan is unfortunate to be releasing his memoirs at the exact moment when the chickens he fed for so many years are coming home to roost, but there's no doubt that he's facing a hostile reception in some quarters: here, for example.
Greenspan was the most political of Fed Chairmen. His views on fiscal policy depended primarily on who was asking (and even he now admits that his endorsement of the Bush tax cuts was a mistake). But the key charge against him has to relate to monetary policy, specifically his willingness to allow unprecedented amounts of money growth at unprecedentedly low interest rates for unprecedentedly long periods of time, even when it became clear that the US economy was in no need of such support. The explosion of cheap money unleashed by Greenspan, in response to the LTCM crach, then the tech crash, and finally the September 2001 terrorist attacks, directly created the severe problems in credit markets that are now unfolding.
Even at the time, Greenspan's justification for this approach -- that it was safe because inflation was so low -- did not stand up to much scrutiny. Greenspan's attitude to inflation was supposedly a monetarist one, best summed up in Milton Friedman's famous quote that "inflation is always and everywhere a monetary phenomenon". However, a more accurate description of his view would be that "inflation is whatever I say it is". He (and thus the Fed) changed his view on what was the best measure of inflationary pressures with remarkable frequency. The only certainty is that it never focused on either the money supply or the widely-followed consumer price index (CPI). For a number of years the Fed appeared to focus on the Employment Cost Index (ECI), but toward the end of his tenure, Greenspan appeared to switch his allegiance to the snappily-named core personal consumption expenditure deflator.
There are good technical reasons for preferring this measure to the CPI, principally the fact that it reflects actual spending patterns rather than the arbitrary and inflexible basket used in computing the CPI. But over the past decade, both of these measures have had a fatal flaw as guides to US monetary policy: they have been held artificially low by the flood of cheap imports coming into the US, mainly from China. These have kept prices down all right, but it's not something that the Fed or Greenspan in particular can take any credit for. In focusing on the apparently tame behaviour of the various price indices, Greenspan and pals turned a blind eye to the buildup of financial market risk that inevitably flowed from the tidal wave of cheap money. Indeed, with his reflexive monetary easings in response to every setback, Greenspan convinced a lot of investors that he would always act to cushion those risks -- the so-called "Greenspan put". (It's largely in reaction to this that Bank of England Governor King was initially inclined to take a hard line in the current crisis).
Now the great man is bloviating (reportedly at $100k per throw) about the inevitability of a recession in the US and a housing crash in the UK. If you're a Northern Rock customer worried about your savings (you probably needn't) or a Northern Rock employee worried about your job (sadly, and through almost no fault of your own, you should be), make sure you know who to blame.
Monday, 17 September 2007
Wednesday, 12 September 2007
Martin Amis and the cult of death
I have not previously written anything about the "Clash of Civilisations" (or "Long War" or whatever you want to call it). Bigger brains than mine have focused on it, as have smaller ones such as George Bush's. I am going to offer a few thoughts on it now for two reasons:
1. I have been reading a biography of Gertrude Bell, the remarkable adventurer (or poet or author or mountaineer or photographer or geologist) without whom the state of Iraq would probably never have been created;
2. Martin Amis has broken a fairly prolonged silence on the issue this week, publishing a very odd article.
Why do I say it is "very odd"? Well, to start with, Amis devotes almost a quarter of the piece to a completely pointless rant about the appropriateness of the term "9/11" to describe the terrorist attacks of September 11, 2001. He even says that there is an "unfortunate resemblance" to the "911" emergency call number used in the US. Martin, old pal, that's exactly why 9/11 came into such widespread use.
The article is also odd because it indulges Amis's penchant for using obscure words -- or for making up some of his own. "Thanatism"? "Ratiocinative"? Very helpful for the average reader trying to digest this stuff on the train to work. (He also talks about a "negative eureka", which prompted my wife to say "What? You mean 'I've lost it'?" Maybe so.)
Moving on to matters of greater substance, Amis seems to believe (perhaps because he has been living in Latin America for the past few years) that his views on the war on terror are in some way unique. He recounts an appearance on Question Time in 2006, wherein he "said that the West should have spent the past five years in the construction of a democratic and pluralistic model in Afghanistan, while in the meantime merely containing Iraq. In Afghanistan we have already seen, not the “genocide” eagerly predicted by Noam Chomsky and others, but “genogenesis” (in Paul Berman’s coinage) – a burgeoning census. Since 2001, the population has risen by 25 per cent. Meanwhile, too, needless to say, the coalition should have been tearing up the earth of Waziristan in its hunt for the remnants of al-Qaeda". He claims that this "centrist" (his word) view was greeted with disbelief -- which I find very surprising, as I suspect that the position he advanced would be shared by a large proportion of the UK population.
Amis's main contention is that Islamism should be seen as a death cult. Well, duh. However, I don't think he is on firm ground in suggesting that this makes it comparable to (or even "indebted" to) Bolshevism and Nazism. There is a world of difference between people who are keen to kill other people, and people who are willing or even anxious to kill themselves in the process. As Amis himself might say, I think his ratiocinations on thanatism are inapposite.
Like a lot of other commentators given to foaming at the mouth about Islamism (Mark Steyn, Christopher Hitchens), Amis falls seriously short when it comes to offering any practical suggestions for what the West should do next. I don't claim to have any big ideas either, which is one reason I've stayed away from this topic until now. However, I do have one thought. Clearly, if there's a death cult out to get you, you have to do everything possible to kill it. It's like dealing with the Terminator, rather than with the IRA -- it doesn't have an exit strategy or a fallback position. But it makes no sense to adopt a policy that results in the addition of ten new recruits to the death cult for every one that you eliminate.
That's what the "war on terror" has managed to do, thanks mainly to the invasion of Iraq, and that's the key reason why that invasion was such a colossal error. Judging from the quote a couple of paragraphs back, Amis realises that too. The problem is, there's no way of uninvading Iraq. Dubya and pals have fed the death cult, instead of starving it.
1. I have been reading a biography of Gertrude Bell, the remarkable adventurer (or poet or author or mountaineer or photographer or geologist) without whom the state of Iraq would probably never have been created;
2. Martin Amis has broken a fairly prolonged silence on the issue this week, publishing a very odd article.
Why do I say it is "very odd"? Well, to start with, Amis devotes almost a quarter of the piece to a completely pointless rant about the appropriateness of the term "9/11" to describe the terrorist attacks of September 11, 2001. He even says that there is an "unfortunate resemblance" to the "911" emergency call number used in the US. Martin, old pal, that's exactly why 9/11 came into such widespread use.
The article is also odd because it indulges Amis's penchant for using obscure words -- or for making up some of his own. "Thanatism"? "Ratiocinative"? Very helpful for the average reader trying to digest this stuff on the train to work. (He also talks about a "negative eureka", which prompted my wife to say "What? You mean 'I've lost it'?" Maybe so.)
Moving on to matters of greater substance, Amis seems to believe (perhaps because he has been living in Latin America for the past few years) that his views on the war on terror are in some way unique. He recounts an appearance on Question Time in 2006, wherein he "said that the West should have spent the past five years in the construction of a democratic and pluralistic model in Afghanistan, while in the meantime merely containing Iraq. In Afghanistan we have already seen, not the “genocide” eagerly predicted by Noam Chomsky and others, but “genogenesis” (in Paul Berman’s coinage) – a burgeoning census. Since 2001, the population has risen by 25 per cent. Meanwhile, too, needless to say, the coalition should have been tearing up the earth of Waziristan in its hunt for the remnants of al-Qaeda". He claims that this "centrist" (his word) view was greeted with disbelief -- which I find very surprising, as I suspect that the position he advanced would be shared by a large proportion of the UK population.
Amis's main contention is that Islamism should be seen as a death cult. Well, duh. However, I don't think he is on firm ground in suggesting that this makes it comparable to (or even "indebted" to) Bolshevism and Nazism. There is a world of difference between people who are keen to kill other people, and people who are willing or even anxious to kill themselves in the process. As Amis himself might say, I think his ratiocinations on thanatism are inapposite.
Like a lot of other commentators given to foaming at the mouth about Islamism (Mark Steyn, Christopher Hitchens), Amis falls seriously short when it comes to offering any practical suggestions for what the West should do next. I don't claim to have any big ideas either, which is one reason I've stayed away from this topic until now. However, I do have one thought. Clearly, if there's a death cult out to get you, you have to do everything possible to kill it. It's like dealing with the Terminator, rather than with the IRA -- it doesn't have an exit strategy or a fallback position. But it makes no sense to adopt a policy that results in the addition of ten new recruits to the death cult for every one that you eliminate.
That's what the "war on terror" has managed to do, thanks mainly to the invasion of Iraq, and that's the key reason why that invasion was such a colossal error. Judging from the quote a couple of paragraphs back, Amis realises that too. The problem is, there's no way of uninvading Iraq. Dubya and pals have fed the death cult, instead of starving it.
Monday, 10 September 2007
Kaletsky still doesn't get it
At an early stage of this summer's financial crisis (30 July to be exact), I wrote about the confidence of the big beasts of economic punditry in the UK that the whole thing would blow over without any serious impact on the real economy. I suggested that it was much to soon to be sure about this, since banks always react to old loans going bad in the same way: they stop making new loans.
One of the big beasts I named at that time, Anatole Kaletsky, has continued to write about the crisis on a regular basis. He's been careful to abide by one of the main rules of punditry: express every possible opinion at least once, so you always have a helpful quote to fall back on. Without parodying his views too much, I'd say he's gone from "crisis, what crisis?" to "there wouldn't be a crisis if market participants were as smart as A. Kaletsky".
So when I opened the biz section of today's Times and found a Kaletsky piece called "Summer crisis will change things forever", I thought that his Damascene conversion was finally complete. I was wrong: after a few swipes at the Bank of England, Kaletsky gets to his main point -- which is that the hedge funds done it: "The question that nobody bothered to ask was how the managers of hedge funds and SIVs could provide this desirable combination of liquidity and safety, while still paying high returns and pocketing very handsome fees for themselves." Speak for yourself, Anatole. Quite a lot of people (including, no doubt, many within the hedge fund sector itself) were asking that question years ago, and managed to resist the temptation to invest there.
But hedge funds' fee structures, obscene as they may have been, are SO beside the point. The issue now is that these funds took on enormous amounts of structured product -- CLOs and CDOs and all that stuff, prime and non-prime. Their appetite for it was so huge that a lot of investment banks turned into sausage machines, churning the product out at ever-increasing rates.
As interest rates have risen, the credit quality of the sub-prime stuff has come into question, particularly in the US. Hedge fund investors are asking for their money back, so the managers are having to liquidate assets -- or to put it another way, they're selling the CLO and CDO product back to the banks that originated it. In fairness to Kaletsky, he recognises this, but stops short of drawing the important conclusion: the need to fund this tidal wave of product that is falling onto the balance sheet is putting a strain on the banks' own liquidity, so they're not making any new loans, least of all to each other. In today's highly credit-driven economy, this is all but certain to lead to big problems.
I wouldn't be surprised if hedge fund fees become a matter for a huge class action lawsuit once we get through the present crisis. But that will be a luxury we can enjoy in a quieter time. For now, the huge rollover of commercial paper in London this week and the possible unwinding of the Yen carry trade are much more pressing concerns.
One of the big beasts I named at that time, Anatole Kaletsky, has continued to write about the crisis on a regular basis. He's been careful to abide by one of the main rules of punditry: express every possible opinion at least once, so you always have a helpful quote to fall back on. Without parodying his views too much, I'd say he's gone from "crisis, what crisis?" to "there wouldn't be a crisis if market participants were as smart as A. Kaletsky".
So when I opened the biz section of today's Times and found a Kaletsky piece called "Summer crisis will change things forever", I thought that his Damascene conversion was finally complete. I was wrong: after a few swipes at the Bank of England, Kaletsky gets to his main point -- which is that the hedge funds done it: "The question that nobody bothered to ask was how the managers of hedge funds and SIVs could provide this desirable combination of liquidity and safety, while still paying high returns and pocketing very handsome fees for themselves." Speak for yourself, Anatole. Quite a lot of people (including, no doubt, many within the hedge fund sector itself) were asking that question years ago, and managed to resist the temptation to invest there.
But hedge funds' fee structures, obscene as they may have been, are SO beside the point. The issue now is that these funds took on enormous amounts of structured product -- CLOs and CDOs and all that stuff, prime and non-prime. Their appetite for it was so huge that a lot of investment banks turned into sausage machines, churning the product out at ever-increasing rates.
As interest rates have risen, the credit quality of the sub-prime stuff has come into question, particularly in the US. Hedge fund investors are asking for their money back, so the managers are having to liquidate assets -- or to put it another way, they're selling the CLO and CDO product back to the banks that originated it. In fairness to Kaletsky, he recognises this, but stops short of drawing the important conclusion: the need to fund this tidal wave of product that is falling onto the balance sheet is putting a strain on the banks' own liquidity, so they're not making any new loans, least of all to each other. In today's highly credit-driven economy, this is all but certain to lead to big problems.
I wouldn't be surprised if hedge fund fees become a matter for a huge class action lawsuit once we get through the present crisis. But that will be a luxury we can enjoy in a quieter time. For now, the huge rollover of commercial paper in London this week and the possible unwinding of the Yen carry trade are much more pressing concerns.
Monday, 3 September 2007
No credit to the Times
Today's Times has an editorial to the effect that the UK tax credits for lower-paid workers (sorry, that's "Gordon Brown's tax credits" -- there must be an election coming) are more trouble than they're worth. This may well be true, but I'm not sure that it justifies the same paper's front page story today, which is also about tax credits.
Apparently a lot of people who were overpaid the tax credits (either through official incompetence, misunderstanding of the rules or outright fraud) have been forced to repay the government. However, because the tax authorities did not properly notify everyone whose claims were under investigation, many people mat be able to appeal successfully against the demand for repayment.
The Times illustrates the story with a front-page picture of a pleasant-looking woman who has successfully won such an appeal. She doesn't dispute that she was overpaid, but seems to have no qualms about keeping the money. Amazingly the Times helped with her appeal, which I think makes it an accessory to crime. Needless to say, the lady looks happy almost to the point of smugness. I hope she'll understand if those of us whose tax money she's pocketed are a bit less happy.
Apparently a lot of people who were overpaid the tax credits (either through official incompetence, misunderstanding of the rules or outright fraud) have been forced to repay the government. However, because the tax authorities did not properly notify everyone whose claims were under investigation, many people mat be able to appeal successfully against the demand for repayment.
The Times illustrates the story with a front-page picture of a pleasant-looking woman who has successfully won such an appeal. She doesn't dispute that she was overpaid, but seems to have no qualms about keeping the money. Amazingly the Times helped with her appeal, which I think makes it an accessory to crime. Needless to say, the lady looks happy almost to the point of smugness. I hope she'll understand if those of us whose tax money she's pocketed are a bit less happy.
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