>So much for "Chief Financial Disciplinarian"
Here's what the Financial Times Lex column had to say today:
>It's official: there is a Greenspan put option. Yesterday's half a
>percentage point interest rate cut by the US Federal Reserve may not
>have been designed explicitly to bail out the stock market. But that
>is exactly what it is in danger of doing - especially since the cut
>came between official meetings, thereby heightening its impact.
>
>That the fundamentals justify this move, which smacks of panic, is
>far from clear. Yes, the US economy is slowing quite rapidly.
>Confidence is falling among both consumers and businesses, as
>Tuesday's National Association of Purchasing Managers report
>suggested. Even the housing market may be weakening, judging by the
>drop in new mortgage applications. But a slowdown, from growth of
>over 5 per cent to, say, 2 1/2 per cent, was badly needed. And few
>forecasters were expecting a recession. Now, of course, given how
>aggressively the Fed is prepared to ease - this is surely just the
>first in a series of cuts - growth is likely to accelerate away
>again in the second half of the year.
>
>Investors have every cause for short-term celebration, and shares
>duly soared on the news. But in the longer term, Alan Greenspan, Fed
>chairman, may not be doing anyone a favour. Working off the excesses
>of an overvalued stock market is a painful but necessary process -
>and one that arguably still had some way to run in the case of
>technology stocks. By showing investors he will rescue them come
>what may, he is encouraging excessive risk-taking and the formation
>of future bubbles. Investors should ask themselves whether in
>fostering such a classic moral hazard the Fed is really being their
>friend.
Sadomonetarism lives!
Doug