Posted on 11/22/2008 10:04:57 PM PST by TigerLikesRooster
TIME MAGAZINE FEBRUARY 15, 1999 VOL. 153 NO. 6
The Three Marketeers
Economist heroes? It sounds silly unless you understand how close we came to economic meltdown last year.
BY JOSHUA COOPER RAMO
The Phone Rings. You Are on Vacation in the Virgin Islands. You have been dreaming about the fishing for the better part of two months, and you are about to head out to chase the Christmastime bonefish running offshore and to spend a day on the water, with the sun leaching six months of Washington baloney from your brain. The phone rings, and because you are Secretary of the Treasury, you answer. "This is the Treasury operator," says the voice. "Please stand by for a conference call."
The phone rings. You are at home, but getting ready to head out to your weekly tennis game in the Virginia suburbs. You are thinking perhaps about your spin serve, a wicked slice that moves left to right so fast that you have left some of Washington's biggest names tripping over their feet and cursing. Sure, you can leave the stock market wheezing with one word about higher interest rates, but...if only they could see what you can do to anyone foolish enough to line up inside against that serve! You are 72 years old, and your tennis game is still one of your great pleasures, and surely you have been looking forward to this match all week. But the phone is ringing, and because you are chairman of the Federal Reserve Board, you answer. "This is the Treasury operator," says the voice. "Please stand by."
(Excerpt) Read more at geocities.com ...
History will judge LTCM rescue quite differently from what this article says, which had been the prevailing consensus at the time.
Hero tale about Greenspan and Rubin? Now it is so laughable.
Ping!
>Clinton’s grasp of Realeconomik includes the tenet that short-term political gains are never worth long-term economic risks.<
yeah, right.
Well ken, they’re all back in for another shot it, eh?
LTCM probably wouldn’t have collapsed if we didn’t have deflation during the mid 90’s, as the price of gold fell to a low of $253 per ounce in 1999 and oil was around $10 a barrel. There were a lot of bankruptcies as deflation is very hard on borrowers (for example, Russia defaulted on its bonds, Asian debt crisis, etc).
Good post, definition from CATO (1999):
In September 1998 the Federal Reserve organized a rescue of Long-Term Capital Management, a very large and prominent hedge fund on the brink of failure. The Fed intervened because it was concerned about possible dire consequences for world financial markets if it allowed the hedge fund to fail.
The Fed’s intervention was misguided and unnecessary because LTCM would not have failed anyway, and the Fed’s concerns about the effects of LTCM’s failure on financial markets were exaggerated. In the short run the intervention helped the shareholders and managers of LTCM to get a better deal for themselves than they would otherwise have obtained.
The intervention also is having more serious long-term consequences: it encourages more calls for the regulation of hedge-fund activity, which may drive such activity further offshore; it implies a major open-ended extension of Federal Reserve responsibilities, without any congressional authorization; it implies a return to the discredited doctrine that the Fed should prevent the failure of large financial firms, which encourages irresponsible risk taking; and it undermines the moral authority of Fed policymakers in their efforts to encourage their counterparts in other countries to persevere with the difficult process of economic liberalization.
Ping to Kellynla...Kelly where is that Greenspan is a Hero poster, LiberalLarry?
If we had some kind of deflation, we have started recovering by now. without unnecessary leveraged credit or huge debt or bailouts.
It had beaten the principle of free market: those who take unnecessary risks go down.
It distorted the risk perception and resultant calculation.
Everytime there is a hint of economy having serious downturn, we did the same thing and make the eventual correction more painful and dangerous.
“Ping to Kellynla...Kelly where is that Greenspan is a Hero poster?”
In the dumpster with the rest of the incompetent “has-been” propaganda.
bump
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