Monday, November 24, 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
  • Recent Articles

  • Enter your email address to subscribe and receive notifications of new posts by email.

  • .

    Solano News

    Cadets raise cash to help wounded Air Force veteran

    By Ian Thompson | From Page: A1 | Gallery

     
    Solano cities gather for Thanksgiving meal

    By Tony Wade | From Page: A2

     
    Food Addicts group sets Thanksgiving Day meet

    By Susan Hiland | From Page: A3

    Local government board schedules meeting

    By Susan Hiland | From Page: A3

     
    Turkey Trot returns Thanksgiving Day

    By Glen Faison | From Page: A3

    Holiday tree-lighting events begin

    By Glen Faison | From Page: A3

     
    Holiday boutiques in full swing

    By Susan Winlow | From Page: A3 | Gallery

     
    .

    US / World

    Anxieties mount as Ferguson waits on grand jury

    By The Associated Press | From Page: A1

     
    3 months after Napa quake, recovery rolling

    By The Associated Press | From Page: A1

    US looking past Ebola to prepare for next outbreak

    By The Associated Press | From Page: A1

     
    San Jose police arrest man after airport chase

    By The Associated Press | From Page: A4

    Surfer missing off beach south of San Francisco

    By The Associated Press | From Page: A4

     
    Thief suspect falls through ceiling, leaves phone

    By The Associated Press | From Page: A4

    1 killed, dozens injured in California bus crash

    By The Associated Press | From Page: A4

     
    Boy with fake gun dies after shot by Ohio officer

    By The Associated Press | From Page: A5

    Israeli Cabinet moves to define Israel as Jewish

    By The Associated Press | From Page: A5

     
    Former DC Mayor Marion Barry dies at 78

    By The Associated Press | From Page: A5

    Islamic State group recruits, exploits children

    By The Associated Press | From Page: A5

     
    Giffords rides in Tucson cycling event

    By The Associated Press | From Page: A5

    Suicide bomber kills at least 45 Afghans

    By The Associated Press | From Page: A5

     
    Some 30 horses die in stable fire outside Chicago

    By The Associated Press | From Page: A5

    Crew blasts off for International Space Station

    By The Associated Press | From Page: A5

     
    US tells Iran to consider nuclear talks extension

    By The Associated Press | From Page: A5

    Damage worse than thought in Japanese earthquake

    By The Associated Press | From Page: A5

     
    Joey Chestnut devours turkey to win eating contest

    By The Associated Press | From Page: A5

    Strong quake in west China kills 5; 54 hurt

    By The Associated Press | From Page: A5

     
    Health care M&A leads global deal surge

    By The Associated Press | From Page: A9

    .

    Opinion

     
    Does D stand for deliberate, deception, denial?

    By Colleen Britton | From Page: A8

    OMG, am I eating a GMO?

    By Mike Kirchubel | From Page: A8

     
    .

    Living

    Today in History: Nov. 24, 2014

    By The Associated Press | From Page: A2

     
    Community Calendar: Nov. 24, 2014

    By Susan Hiland | From Page: A2

     
    Horoscopes: Nov. 25, 2014

    By Holiday Mathis | From Page: B5

    My sister-in-law expects me to pay her for damages, but she won’t pay me

    By Kathy Mitchell and Marcy Sugar | From Page: A7

     
    Horoscopes: Nov. 24, 2014

    By Holiday Mathis | From Page: A7

    .

    Entertainment

    ‘Mockingjay, Part 1′ opens with $123 million

    By The Associated Press | From Page: B6

     
    TVGrid Nov 25

    By Daily Republic Syndicated Content | From Page: B6

    List of winners of the American Music Awards

    By The Associated Press | From Page: B6

     
    1D, Katy Perry win big at American Music Awards

    By The Associated Press | From Page: B6

    TVGrid Nov 24

    By Daily Republic Syndicated Content | From Page: A9

     
    .

    Sports

     
    Speights scores 28 as Warriors hold off Thunder

    By The Associated Press | From Page: B1 | Gallery

    Hyde scores go-ahead TD, lifts 49ers past Redskins

    By The Associated Press | From Page: B1 | Gallery

     
    Federer leads Swiss past France for Davis Cup

    By The Associated Press | From Page: B1 | Gallery

    Hamilton answers Rosberg in style to clinch title

    By The Associated Press | From Page: B1 | Gallery

     
    Stacy Lewis sweeps 3 biggest LPGA awards

    By The Associated Press | From Page: B2

    UCLA honors Robinson, retires No. 42 for all teams

    By The Associated Press | From Page: B2

     
    Katy Perry to perform at Super Bowl halftime show

    By The Associated Press | From Page: B2

    NFL roundup: Seahawks roll past Cardinals

    By The Associated Press | From Page: B2 | Gallery

     
    Athletics acquire 1B Ike Davis from Pirates

    By The Associated Press | From Page: B2

    Revs win 2-1 at Red Bulls in East final 1st leg

    By The Associated Press | From Page: B2

     
    Sarvas puts Galaxy past Seattle 1-0 in West opener

    By The Associated Press | From Page: B2

    First lady attends Princeton women’s hoops game

    By The Associated Press | From Page: B2

     
    This date in sports history for Monday, Nov. 24, 2014

    By The Associated Press | From Page: B3

     
    .

    Business

    .

    Obituaries

    Leslie “Esi” Gros

    By Nancy Green | From Page: A4

     
    Jack I. Johnson

    By Glen Faison | From Page: A4

    Dorothy Pouge Arnold

    By Nancy Green | From Page: A4

     
    Arthur Irving Weiner

    By Nancy Green | From Page: A4, 1 Comment

    .

    Comics

    Get Fuzzy Nov 25

    By Daily Republic Syndicated Content | From Page: B4

     
    Baldo Nov 25

    By Daily Republic Syndicated Content | From Page: B4

    Garfield Nov 25

    By Daily Republic Syndicated Content | From Page: B4

     
    Frank and Ernest Nov 25

    By Daily Republic Syndicated Content | From Page: B4

    Wizard of Id Nov 25

    By Daily Republic Syndicated Content | From Page: B4

     
    Baby Blues Nov 25

    By Daily Republic Syndicated Content | From Page: B4

    Pickles Nov 25

    By Daily Republic Syndicated Content | From Page: B4

     
    For Better or Worse Nov 25

    By Daily Republic Syndicated Content | From Page: B4

    Dilbert Nov 25

    By Daily Republic Syndicated Content | From Page: B4

     
    Blondie Nov 25

    By Daily Republic Syndicated Content | From Page: B4

    Rose is Rose Nov 25

    By Daily Republic Syndicated Content | From Page: B4

     
    Zits Nov 25

    By Daily Republic Syndicated Content | From Page: B4

    Peanuts Nov 25

    By Daily Republic Syndicated Content | From Page: B4

     
    Beetle Bailey Nov 25

    By Daily Republic Syndicated Content | From Page: B4

    Sally Forth Nov 25

    By Daily Republic Syndicated Content | From Page: B4

     
    B.C. Nov 25

    By Daily Republic Syndicated Content | From Page: B4

    Sudoku Nov 25

    By Daily Republic Syndicated Content | From Page: B5

     
    Cryptoquote Nov 25

    By Daily Republic Syndicated Content | From Page: B5

    Word Sleuth Nov 25

    By Daily Republic Syndicated Content | From Page: B5

     
    Crossword Nov 25

    By Daily Republic Syndicated Content | From Page: B5

    Bridge Nov 25

    By Daily Republic Syndicated Content | From Page: B5

     
    B.C. Nov 24

    By Daily Republic Syndicated Content | From Page: A6

    Garfield Nov 24

    By Daily Republic Syndicated Content | From Page: A6

     
    Baby Blues Nov 24

    By Daily Republic Syndicated Content | From Page: A6

    Dilbert Nov 24

    By Daily Republic Syndicated Content | From Page: A6

     
    Rose is Rose Nov 24

    By Daily Republic Syndicated Content | From Page: A6

    Frank and Ernest Nov 24

    By Daily Republic Syndicated Content | From Page: A6

     
    Peanuts Nov 24

    By Daily Republic Syndicated Content | From Page: A6

    Beetle Bailey Nov 24

    By Daily Republic Syndicated Content | From Page: A6

     
    Pickles Nov 24

    By Daily Republic Syndicated Content | From Page: A6

    Wizard of Id Nov 24

    By Daily Republic Syndicated Content | From Page: A6

     
    Sally Forth Nov 24

    By Daily Republic Syndicated Content | From Page: A6

    Baldo Nov 24

    By Daily Republic Syndicated Content | From Page: A6

     
    Get Fuzzy Nov 24

    By Daily Republic Syndicated Content | From Page: A6

    Zits Nov 24

    By Daily Republic Syndicated Content | From Page: A6

     
    For Better or Worse Nov 24

    By Daily Republic Syndicated Content | From Page: A6

    Blondie Nov 24

    By Daily Republic Syndicated Content | From Page: A6

     
    Cryptoquote Nov 24

    By Daily Republic Syndicated Content | From Page: A7

    Word Sleuth Nov 24

    By Daily Republic Syndicated Content | From Page: A7

     
    Crossword Nov 24

    By Daily Republic Syndicated Content | From Page: A7

    Bridge Nov 24

    By Daily Republic Syndicated Content | From Page: A7

     
    Sudoku Nov 24

    By Daily Republic Syndicated Content | From Page: A7