Friday, November 28, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Did we learn anything from financial collapses?

stevenson column sig

By
From page B7 | May 11, 2014 |

It was almost 18 years ago that Alan Greenspan, then chairman of the Federal Reserve, uttered his famous warning. Here’s his quote, with two words standing out: “Clearly, low inflation implies less uncertainty about the future . . . but how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions?”

The phrase “irrational exuberance,” although not quite as dramatic as “a date which will live in infamy” – no other expression was – not only shook up the market, but has become permanently associated with Greenspan’s term at the Fed. Looking back at Dec. 5, 1996, the Fed chairman was so highly respected and feared – that it, at least briefly – that it became a self-fulfilling prophecy. The words became mandatory for anyone seeking to comment on the market’s future.

It should be no surprise that it was just a short leap from the market’s nervous reaction to Greenspan’s warning to a rehash of the Crash of 1929. It was hard to avoid media arguments as to whether December 1996 was the beginning of an ominous trend or just a “much-needed” correction. Of course, just the possibility that we were on the verge of a disaster triggered a great deal of selling. Those with cooler heads, so to speak, saw the “Greenspan sell-off” as a buying opportunity.

The fact is, there is very little the two eras – then and now – have in common, with one exception: that it was and is an Alfred E. Newman market. You remember Alfred from Mad magazine, don’t you? The question, “What, me worry?” seems to be rampant on Wall Street, along with the assurance that “things are different now.”

Well, they are different. For one thing, very few of the companies whose stocks had climbed off the charts paid dividends, so there was nothing to fall back on when the panic began. The “hottest” stocks were in three industries – radio, aluminum and aircraft. None of those stocks paid any dividends, so the feeding frenzy was solely based on hope (prayer) for continued price increases.

As the panic on Wall Street began, the Fed decided that the best medicine for an “overheated” economy was higher interest rates. Did the rate increase do the trick? If you think that the failure of 2,000 banks in one week was what the economy needed, then the Fed made a wise move.

Now, of course, Federal Reserve officials are much wiser and are immune from making serious economic mistakes. Yeah, sure. The steady hand on the tiller means that there will never again be a financial collapse. If only.

The lesson that should be learned from financial history is that there are no lessons to be learned, except that we should beware of those who say, “it’s different this time.” Didn’t they say that about the real estate market a few years ago? Or gold? Or the Japanese stock market? The list goes on.

Bud Stevenson, a retired stockbroker, lives in Fairfield. Reach him at Bsteven254@aol.com.

LEAVE A COMMENT

Discussion | 2 comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

  • rlw895May 11, 2014 - 6:18 am

    Yes, we learned that markets don't regulate themselves, unless you believe the boom-bust cycle is a form of regulation. If that's the case, I'll amend my statement to "markets don't regulate themselves very well." We also learned that the Republicans are the tool of the small minority of Americans who have learned how to profit from the boom-bust cycles and are willing to do just that, no matter who or how many are harmed. We also learned that people like Elizabeth Warren and Brooksley Born are rare finds to be heeded and put in leadership positions.

    Reply | Report abusive comment
  • just sayin'May 11, 2014 - 10:16 am

    We learned that people are not wise and vote the same tired Tax & Spend ... and Spend ... .and SPEND DemWits into office. The same people will NOT make a difference.

    Reply | Report abusive comment
.

Solano News

 
Solano Turkey Trot draws 2,600 to college

By Ryan McCarthy | From Page: A1 | Gallery

 
 
Il Fiorello schedules olive milling day

By Susan Hiland | From Page: A3

Early Black Friday shoppers take advantage of deals

By Susan Hiland | From Page: A3 | Gallery

 
Eagle Scout project adds floating docks at Rockville Park

By Susan Hiland | From Page: A4 | Gallery

 
.

US / World

‘Guardian angel,’ community join to give man home

By The Associated Press | From Page: A1

 
US celebrates Thanksgiving with parades, turkey

By The Associated Press | From Page: A3 | Gallery

Tons of marijuana seized in Central California

By The Associated Press | From Page: A4, 4 Comments

 
Gorilla death prompts San Francisco Zoo changes

By The Associated Press | From Page: A4, 1 Comment

Health agents still unpaid after plan’s rollout

By The Associated Press | From Page: A4

 
California Burger King employee finds $100,000

By The Associated Press | From Page: A4, 1 Comment

Researchers discover ‘pre-cancers’ in blood

By The Associated Press | From Page: A5

 
At 1 month, US Ebola monitors finding no cases

By The Associated Press | From Page: A5

Families asked to host visitors for pope’s US trip

By The Associated Press | From Page: A5

 
35 arrested in Oakland after protest march

By The Associated Press | From Page: A6

A glance at Ferguson: Then, now and the future

By The Associated Press | From Page: A6, 1 Comment

 
For some, location of Brown’s hands irrelevant

By The Associated Press | From Page: A6, 1 Comment

Ferguson gives thanks after a quiet night

By The Associated Press | From Page: A6

 
Colorado mastodon bones show ancient warmer Earth

By The Associated Press | From Page: A7, 1 Comment

Ebola aid dogged by coordination lags in Guinea

By The Associated Press | From Page: A10

 
Taliban attack rocks upscale Kabul district

By The Associated Press | From Page: A10

Queen of crime writing PD James dies aged 94

By The Associated Press | From Page: A10

 
Small quake rattles California wine country

By The Associated Press | From Page: A12

.

Living

Today in History: Nov. 28, 2014

By The Associated Press | From Page: A2

 
Community Calendar: Nov. 28, 2014

By Susan Hiland | From Page: A2

Movies just another course on Thanksgiving

By Susan Hiland | From Page: A3 | Gallery

 
Poor health is no excuse for not behaving like a caring person

By Kathy Mitchell and Marcy Sugar | From Page: A9

Horoscope for Nov. 28, 2014

By Holiday Mathis | From Page: A9

 
.

Entertainment

Week in preview: Nov. 28 to Dec. 4, 2014

By Amy Maginnis-Honey | From Page: B1

 
Singer John Mayer among ‘Late Late Show’ subs

By The Associated Press | From Page: B2

Review: ‘Horrible Bosses 2′ doesn’t work

By Jake Coyle | From Page: B2

 
Review: ‘Madagascar’ spin-off hatches family fun

By The Associated Press | From Page: B2 | Gallery

Prison theater transforms Colombian inmates

By The Associated Press | From Page: B2

 
Reading Harry Potter gives clues to brain activity

By The Associated Press | From Page: B3

 
Talking songs with She & Him

By Kim Durbin | From Page: B3

Entertainment calendar Nov. 28, 2014

By Amy Maginnis-Honey | From Page: B4

 
Cosby testimony describes accuser’s spiked story

By The Associated Press | From Page: B6

.

Sports

College notebook: Many happy returns for Arizona’s Bondurant

By Paul Farmer | From Page: B7 | Gallery

 
Sherman’s big night leads Seattle past 49ers again

By The Associated Press | From Page: B7, 1 Comment | Gallery

Rookie quarterback Carr is Raiders’ silver lining

By The Associated Press | From Page: B7

 
US cities urged to keep price tags down for 2024

By The Associated Press | From Page: B7

Eagles roll over Cowboys 33-10 for NFC East lead

By The Associated Press | From Page: B8 | Gallery

 
5 investigated in FIFA WCup bid corruption probe

By The Associated Press | From Page: B8

Johnson shines in Detroit’s 34-17 win over Chicago

By The Associated Press | From Page: B8

 
No. 9 UCLA must overcome Stanford for Pac-12 title

By The Associated Press | From Page: B10

Signups for Friday, Nov. 28, 2014

By Paul Farmer | From Page: B10

 
.

Business

Kia’s ‘Soulful’ first electric car

By Ann M. Job | From Page: C1

 
Automakers aim to drive away car computer hackers

By The Associated Press | From Page: C2

3 Reasons holiday shoppers will spend cautiously

By The Associated Press | From Page: B11

 
OPEC keeps oil output on hold despite low prices

By The Associated Press | From Page: B11

.

Obituaries

 
Deanna L. Haines

By Susan Hiland | From Page: A4

Esther Ringler

By Nancy Green | From Page: A4

 
.

Comics

Baby Blues

By Daily Republic Syndicated Content | From Page: A8

 
Baldo

By Daily Republic Syndicated Content | From Page: A8

Wizard of Id

By Daily Republic Syndicated Content | From Page: A8

 
Garfield

By Daily Republic Syndicated Content | From Page: A8

Dilbert

By Daily Republic Syndicated Content | From Page: A8

 
B.C.

By Daily Republic Syndicated Content | From Page: A8

Peanuts

By Daily Republic Syndicated Content | From Page: A8

 
Zits

By Daily Republic Syndicated Content | From Page: A8

Pickles

By Daily Republic Syndicated Content | From Page: A8

 
Beetle Bailey

By Daily Republic Syndicated Content | From Page: A8

Sally Forth

By Daily Republic Syndicated Content | From Page: A8

 
Frank and Ernest

By Daily Republic Syndicated Content | From Page: A8

Get Fuzzy

By Daily Republic Syndicated Content | From Page: A8

 
For Better or Worse

By Daily Republic Syndicated Content | From Page: A8

Rose is Rose

By Daily Republic Syndicated Content | From Page: A8

 
Blondie

By Daily Republic Syndicated Content | From Page: A8

Word Sleuth

By Daily Republic Syndicated Content | From Page: A9

 
Sudoku

By Daily Republic Syndicated Content | From Page: A9

Crossword

By Daily Republic Syndicated Content | From Page: A9

 
Cryptoquote

By Daily Republic Syndicated Content | From Page: A9

Bridge

By Daily Republic Syndicated Content | From Page: A9