Monday, June 06, 2005

Fed Head Hypocrite at his Best!

Says Hedge Funds provide a valuable service to the market???
What about LTCM --Long Term Capital Management

Today in satellite delivered speech to the IMF conference in Beijing, China Fed Head Alan Greenspan was at his hypocritical best when in a speech about the anomaly of low long term interest rates he talked about the merits of speculators and hedge funds :

"I trust such an episode would not induce us to lose sight of the very important contributions hedge funds and new financial products have made to financial stability by increasing market liquidity and spreading financial risk, and thereby enhancing economic flexibility and resilience."

Give me a break.

In September of 1998 the world was in financial market melt down mode because of the speculative hedge fund LTCM had over-leveraged itself with third world debt, most notably Russian, and faced imminent collapse threatening to bring the rest of the financial world with it. Then NY Fed Head Corrigan cobbled a deal together by collaring all parties together in a closed room. Financial disaster was diverted for the moment. It was rumored that the Fed was extra keen to put a deal together because the daisy chain of catastrophe would get back to the big banks, which some in the market believed had not been properly supervised by the Fed. To now say hedge funds provide stability is blasphemous!

Perhaps the liquidity that the Fed Head is referring to is not market/trading liquidity, but the liquidity of easy money that has come from all of his bailouts of speculative excesses gone bust. There was the 1987 stock market crash, Mexico, LTCM, etc.. so much so that the Wall Street Journal called the 1990's the Decade of Moral Hazard. See my "The Enron Way a Creation of the Fed":

It is also hypocritical to hear the Fed talk about the service speculative hedge funds provide when he has been consistently chided Fannie Mae and Freddie Mac for their ‘supposed’ speculation....Is that because they provide liquidity to little folks in the housing market and not big rich fat cats. Not surprisingly the Fed has gone to great lengths to disrepute the claims by Fannie Mae that they provide a service to the less than well to do home buyers.... (See among others: )

To learn more about LTCM read the Cato Institute report on LTCM– ( )

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