WSJ Columnist Melloan Practices

verfasst von Cosa, 06.07.2002, 13:18

Den ursprünglichen Artikel, auf den Kasriel sich bezieht, kenne ich nicht; nichtsdestotrotz lohnt es sich diesen zu lesen

<font size="4">WSJ Columnist Melloan Practices"Catch And Release" When It Comes To Greenspan</font>

In his July 2 piece,"Scandals Won't Kill Capitalism; They Might Improve It," Wall Street Journal columnist George Melloan rounds up the usual suspects for the most recent financial market"crime wave" - wheeler-dealer CEOs, compliant Boards of Directors, compromised auditing firms, compromised securities firms, and, of course, the government. In his essay, Melloan comes close to including Fed Chairman Alan Greenspan in the"perp walk," but ultimately lets him go free. To those of us with an Austrian economics bent, Greenspan is the prime suspect for producing the asset market bubble of the 1990s just as his predecessor, Benjamin Strong was our prime suspect for producing the asset bubble of the 1920s. In the aftermath of the 1929 stock market crash, socialism was able to make significant inroads into the US economy - Social Security being a prime example. I suspect that in the aftermath of the 2000 stock market crash, the dismantling of the 1930s'-inspired socialism will be all the more difficult to eliminate - the first victim being the privatizing of Social Security. Your mentor, Ayn Rand, is spinning in her grave, Chairman Greenspan!

So long as central banks are permitted to create credit, the threat of asset bubbles will always be with us. Wheeler-dealers will always exist. But without cheap central-bank created credit, they can't do much wheeling and dealing. Melloan said as much:

The celebrity executives who have attracted so much unwanted attention lately presided over what were in large part"conceptual" enterprises, in the words of Fed Chairman Alan Greenspan. Their"market value largely rests on capitalized reputation" and such firms are inherently fragile, said the chairman in testimony to Congress in March.

A lot of these conceptual firms were big borrowers. Mr. Greenspan noted that the ratio of debt to net worth of non-financial corporations rose to 81% at the end of the third quarter last year, up from 71% from at the end of 1997. Wheeler-dealers in hock up to their ears are not a good bet, but there were plenty of bettors. The Fed made borrowing easy last year. Now it is faced with the question of whether to make it harder again, possibly adding a new burden to corporations having trouble making their numbers.

What is so ironic is that the very data that the Fed assembles and publishes - the flow of funds accounts and the money supply reports -- were clearly signaling that something was rotten on Wall Street. One thing that should have caught Chairman Greenspan's eye was the large"retirement" of corporate equities financed by the issuance of corporate debt, as shown in Chart 1. Why, during the biggest bull stock market in the history of this country was Corporate America retiring its equity? Or was this why we were experiencing the runup in stock prices - because corporations were borrowing the cheap credit provided by the Fed to bid stocks away from the public?

Chart 1

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Couldn't Fed Chairman Greenspan see, as shown in Chart 3, that the market cap of Corporate America was not justified by the return on net worth? After all, in the mid 1960s, profits in relation to net worth were considerably higher than they were in the second half of the 1990s, yet the relative market cap of Corporate America in the 1960s was considerably less than it was in the late 1990s.

Chart 3


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You can throw all of the CEOs you want in jail. You can beef up the SEC. You can pass another Glass-Steagall Act. You can change corporate auditing arrangements. But so long as central banks can create credit at will, you are going to be vulnerable to asset bubbles - and the bursting of those bubbles. This is not a plea for the Fed to target the stock market. Rather, this is a plea for the Fed to target and hit the target of some monetary aggregate. If the Fed were to put money back into monetary policy, the body politic would be better off.

Why, Mr. Melloan, did you"release" Fed Chairman Greenspan from the perp walk?

Paul Kasriel
">http://www.northerntrust.com/librar..._research/weekly/us/020703.html] Quelle

Gruss
Cosa

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gesamter Thread:

• WSJ Columnist Melloan Practices - Cosa, 06.07.2002, 13:18
  • Re: WSJ Columnist Melloan Practices - Sehr schöner Beitrag, Cosa, Danke! Könnte - Popeye, 06.07.2002, 14:09
    • Re: Daten - Cosa, 06.07.2002, 14:16