Having previously put down the phone with JW at 2am last night, phone rings at 2pm today, waking me up from my sleep.
Me, groggily: hellooo?
JW: Have you been sleeping all this while?
Me, indignant: what? no, I woke up in the middle for lunch.
JW: How can you sleep so much??
Me: But… I am tired.
(I spent all of yesterday watching tv)
JW: From what??
I am not proud.
From interview on ABC News with Alan Greenspan, September 15, 2008:
How much worse is this going to get?
“First of all, let us recognize that this is a once in a half century, probably once in a century type of event.”
Worse you’ve ever seen on your career?
“Oh, by far. There’s no question that this is in the process of outstripping anything that I’ve seen, and it still is not resolved and it has a way to go and indeed it will continue to be a corrosive force until the price of homes in the United States stabilizes. That will induce a series of events around the globe which will stabilize the system.”
And you think this will happen early next year?
“That is my best guess, in the sense that I’ve always argued that with this excess level of single-family vacant homes for sale, that excess does not have to be completely removed to get prices to stabilize. But, you have to get the rate of liquidation of those inventories at a pace which causes the market structure to stabilize. Once that happens, then the equity on homes in the United States becomes clear, and that of course is the ultimate collateral for the mortgage-backed securities issued from the United States that have spread around the world.”
Are we going to see any more of these major financial institutions fail?
“I suspect we will… and indeed we shouldn’t try to protect every single institution. The ordinary course of financial change has winners and losers.”
One suggestion has been made, is that the power of short-sellers here is really quite pernicious, and some have said that perhaps the government should step in and suspend the short selling in these financial institutions until the market can stabilize. Is that a good idea?
“A very bad idea. Because what the short-sellers add to the system is a more realistic view of pricing. Cause remember, short-sellers, by nature, are not those with investments in a particular company. And if you only have those with investments in a particular company and only those who are sympathetic to it in the market, you’ll get distortions which will ultimately create far more problems than allowing short-sellers in, which improves the liquidity of the system, enables adjustments to take place, enables prices to be finely determined, because it is only when you get clarity in prices that markets stabilize.”
Greenspan also mentioned support for government intervention in the cases of Bear Stearns and Fannie Mae and Freddie Mac (despite his obvious free economy slant), saying we must remember that this is an unusual situation (‘once in a century’).
The general sentiment is that Greenspan is responsible for the crisis in the first place (ref. Dean Baker and Tim Iacono) and the above interview has been termed ‘The Arsonist Analyzes the Fire’. The gist: the subprime crisis is Greenspan’s ‘legacy’ by his own admission – the result of his oversight when he was chair of the Fed.
Just a year ago, Merrill was trading at 70, Lehman at 60 and AIG at 65. They now trade at $17.05, $0.21 and $4.76 respectively.
