Monday, September 17, 2007 9:58:25 PM
"... and over the past few years had begun to notice the influence of exuberance during bull markets and fear during bear markets."
i'm not a huge greenspan fan, and i do think he's trying to revise - or at least reshape - history, but i don't think your statement here is fair. he wasn't just talking about how fear and greed influence markets, but how their influence was not symmetric. that fear is more damaging than "euphoria" is um, un-damaging
on the other hand, i think its entirely possible to argue that it just wasn't his job to burst bubbles. if i give you money and you do something reckless with it, is it my fault?
by the way, LG, i'm glad i found you again. you saved me oodles of money back in 2000 and i'm eternally grateful and a major fanboy.
Said the Maestro:
“There’s something we don’t model appropriately, which is a profoundly important statistic, and that is the unchanging, innate character of human nature. The behavior of what we are observing in the last seven weeks is identical to what we saw in 1998, what we saw in the stock market crash of 1987, I suspect what we saw in the land boom collapse of 1837, an certainly 1907,” when a major bank panic was only stopped by the intervention of J.P. Morgan.
Economists try to build a model of the economy whose structure is the same during expansions and contractions, he said, and “when we endeavor to apply [it] to periods like this [it] gives us very little.”
There’s a basic euphoric aspect to human nature, he said, that kicks in when an expansion has been going on for several years, and produces bubbles. “Those bubbles cannot be defused until the fever breaks,” he says. “For example, we at the Fed raised the federal funds rate by 300 basis points starting in February, 1994. We stopped … the nascent stock market boom, stock prices did not change in that period. As soon as we stopped, prices took off… We tried to do it again in 1997,” when the Fed raised rates by a quarter of a percentage point, “and the same phenomenon occurred.”
If the economy behaved as models suggest, “we should be able to defuse bubbles by pushing the appropriate elements in the model and the problem that is very evident is the world didn’t work that way.”
He urged future scholars to study the fact that expansions are quite different from contractions. “Fear as a driver, which is going on today, is far more potent than euphoria” which drives the upside. “It happens all the time and it all works the same. The human race has never found a way to confront bubbles. [There’s a] long list of various bubbles, all of which broke because the fever broke and none of which was defused prior to breakdown.”
i'm not a huge greenspan fan, and i do think he's trying to revise - or at least reshape - history, but i don't think your statement here is fair. he wasn't just talking about how fear and greed influence markets, but how their influence was not symmetric. that fear is more damaging than "euphoria" is um, un-damaging
on the other hand, i think its entirely possible to argue that it just wasn't his job to burst bubbles. if i give you money and you do something reckless with it, is it my fault?
by the way, LG, i'm glad i found you again. you saved me oodles of money back in 2000 and i'm eternally grateful and a major fanboy.
Said the Maestro:
“There’s something we don’t model appropriately, which is a profoundly important statistic, and that is the unchanging, innate character of human nature. The behavior of what we are observing in the last seven weeks is identical to what we saw in 1998, what we saw in the stock market crash of 1987, I suspect what we saw in the land boom collapse of 1837, an certainly 1907,” when a major bank panic was only stopped by the intervention of J.P. Morgan.
Economists try to build a model of the economy whose structure is the same during expansions and contractions, he said, and “when we endeavor to apply [it] to periods like this [it] gives us very little.”
There’s a basic euphoric aspect to human nature, he said, that kicks in when an expansion has been going on for several years, and produces bubbles. “Those bubbles cannot be defused until the fever breaks,” he says. “For example, we at the Fed raised the federal funds rate by 300 basis points starting in February, 1994. We stopped … the nascent stock market boom, stock prices did not change in that period. As soon as we stopped, prices took off… We tried to do it again in 1997,” when the Fed raised rates by a quarter of a percentage point, “and the same phenomenon occurred.”
If the economy behaved as models suggest, “we should be able to defuse bubbles by pushing the appropriate elements in the model and the problem that is very evident is the world didn’t work that way.”
He urged future scholars to study the fact that expansions are quite different from contractions. “Fear as a driver, which is going on today, is far more potent than euphoria” which drives the upside. “It happens all the time and it all works the same. The human race has never found a way to confront bubbles. [There’s a] long list of various bubbles, all of which broke because the fever broke and none of which was defused prior to breakdown.”
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