Banking on the fed.SOME investors' enthusiasm for free-market capitalism has a funny way of fading fading fading skin coloring. See Arabian fading syndrome (below). Declining in body condition, general health, activity and productivity. Arabian fading syndrome general health is unimpaired. at their own doorsteps. Witness the widespread Wall Street practice of blaming the Federal Reserve and its chairman, Alan Greenspan Alan Greenspan Dr. Greenspan is Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. , for outbursts of speculation in the financial markets. You may recall, for example, a 36 percent run-up in the silver market between early February and early April this year, followed by a 33 percent plunge The term Plunge has multiple meanings:
The long upsurge in U.S. residential real estate markets? It's a housing bubble caused by the Fed's easy-credit policies--the same sort of over-stimulus that led to stocks' boom-bust cycle from the mid-1990s through 2002. Let's not Let's Not is a science fiction short story by Isaac Asimov. It was first published in Boston University Graduate Journal in December 1954. It was written for no payment as a favour to the journal, and later appeared in the collection Buy Jupiter. pretend that Fed policies have had nothing to do with these episodes. You can't have tire without fuel. Even so, there's a serious problem with relying solely on big-picture "macro" explanations of market movements. They ignore the basic truth that markets are made up of individual "micro" transactions. A case in point arises from the concerns about so-called carry-trade activity that now bedevil the markets. "The carry trade has exacerbated market moves," said a mid-year commentary from Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. fund manager Payden & Rygel. "The Fed's easy monetary policy had been rewarding investors who had sought to leverage portfolios, borrowing at a low short-term rate to then invest in higher-yielding instruments." But the low cost of capital doesn't eliminate all constraints CONSTRAINTS - A language for solving constraints using value inference. ["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. on carry-trade activity. There's also the small matter of prudence, which mandates that investors weigh all the risks involved. But we live in an age when we try to blame cigarette makers for lung cancer lung cancer, cancer that originates in the tissues of the lungs. Lung cancer is the leading cause of cancer death in the United States in both men and women. Like other cancers, lung cancer occurs after repeated insults to the genetic material of the cell. and fast-food restaurants it people get too fat. Under similar logic, the Fed becomes a sort of playground monitor assigned to oversee, and take responsibility for, the behavior of investors. Markets channel capital where it does the most good, but they cease to do that effectively if each individual participant doesn't feel the discipline of risk. The Fed shouldn't assume this burden. We routinely put the onus on commercial bankers to exercise prudence in lending decisions, and insurance companies in managing risks. It's only logical to apply the same kind of standards to all who speculate using borrowed money, whether they be individuals or institutions. |
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