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Alan
Greenspan for Dummies
One
of the great entertainments in our nation’s capital is listening
to testimony by Federal Reserve Board Chairman Alan Greenspan.
Amid great soaring flights of erudition, he somehow always
manages to ground himself long enough to rattle off some homespun
wisdom.
Recently, for example, he told Congress that firms whose value
stems mainly from concept rather than from physical assets
are inherently fragile. What insight—that we would all benefit
if the nation’s businesses had something more going for them
than half-baked ideas.
And, earlier this year, in testimony to the U.S. Senate Banking
Committee that was largely couched in economic jargon, the
chairman again managed to lapse into the folksy, suggesting
that baseball is the real key to understanding an ever-more-complex
investment playing field.
The chairman suggested that a proper grasp of baseball statistics—numeric
concepts that taught him basic arithmetic when he was younger
and were the basis for his legendary statistical acumen—were
the key to financial literacy.
I can’t help but think of this presentation on financial literacy
as the chairman’s “you consumers are a bunch of dummies” speech.
“Education,”
he continued, “can help provide individuals with the financial
knowledge necessary to create household budgets, initiate
savings plans, manage debt and make strategic investment decisions
for their retirement or their children’s education.”
But really it matters little how financially literate the
investor is when our markets are so rife with crooks.
Certainly I have a somewhat jaundiced view of the markets,
one honed through too many years of answering investor hotline
telephone calls as an employee of the Commodity Futures Trading
Commission. The calls were always after-the-cash-is-gone pleas
from frantic people who had been defrauded, and often from
those who had lost their life savings. Most involved firms
operating on the legal fringes—“boiler rooms,” in many cases.
Today’s roll call of suspect firms, on the other hand, includes
a who’s who of our financial industry, and that doesn’t seem
to bother Greenspan.
When the tech bubble deflated over several months in 2000,
few analysts encouraged stockholders to sell off stocks that
were rapidly losing value. And some analysts who did suggest
that course of action were fired, according to widespread
news reports. The analysts, it would seem, were more beholden
to their employers’ investment-banking ties than to the public.
In all, some $4 trillion in wealth evaporated, the Nasdaq
lost 60 percent of its value, the Standard & Poor’s index
tanked, and the Dow dropped below 10,000.
Then there was Enron. In late 2001 the energy company went
from owning almost everything to owning almost nothing, practically
overnight. Thousands lost their jobs. Millions were left holding
worthless stock, or holding the bag for debts run up by the
energy company. It seems the impending collapse was no secret
to high-level Enron execs, or to the company’s auditors at
Arthur Andersen.
It’s somewhat unfair, though, to single out Arthur Andersen.
In the wake of Enron, most of the accounting industry has
proven it doesn’t know its ass from an abacus, as the accounting
practices of firm after firm have been called into question.
In early April, New York Attorney General Eliot Spitzer announced
a probe of Wall Street that included stock analysts at most
of the major companies. Not to be outdone, the nation’s top
securities regulator, the Securities and Exchange Commission,
finally mindful of the stench, joined forces with Spitzer.
In an e-mail unearthed by Spitzer’s Merrill investigation,
Kirsten Campbell, subordinate of one of Merrill’s star stock
touters, complained of the guidance she was receiving from
her bosses: “We are losing people’s money, and I don’t think
that’s the right thing to do.”
Now WorldCom, a publicly traded telecom giant, is on the verge
of going belly up. Should the company crash, tens of thousands
of mom-and-pop shareholders will take a hit. Still, former
CEO Bernard Ebbers, the man who brought WorldCom to the brink
of disaster, is doing just fine: The company has given him
an interest-free $366 million loan.
None of these scandals has drawn more than glancing criticism
from Greenspan. Instead, he’s happy to paint consumers as
financial ignoramuses and call for more investor education.
Perhaps, though, he should reexamine his cute little baseball
analogy. The current level of financial deceit can only bring
to mind the most famous baseball swindle, the 1919 World Series
between the Chicago Black Sox and Cincinnati Reds. The Sox
threw the series, losing on purpose to a lesser team. When
the truth came out, eight players were banned from baseball
for life.
It was felt that the athletes—like so many white-collar swindlers
today—had broken the public’s trust.
—James
A. Thompson
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