Investors know that they have only two things to invest: their time, and their money.
So the smart investor focuses not on when to get in, but when — and under what conditions — to get out. And so wily investors pay close attention when a CFO resigns his post. They know that when a CFO is saying that his personal time is better invested elsewhere, it’s time for investors to leave, too. Stocks often take big hits when a CFO leaves.
So you’d think that the CFO of the largest corporation in the world — the US government — resigns, people would take notice. Particularly if that CFO is a staunchly free-market guy who thinks that government should be run like a business. CFO leaves, bad times ahead…right?
Nobody got it this time.
Of course, the guy in question was 80 and deserved a retirement. But Alan Greenspan knew it was time to hit the road before the going got really rough. And this week, he earned his place in cinematic history, because he’s proved himself an even better actor than Claude Rains.
"Those of us who looked to the self-interest of lending institutions to protect shareholders equity, myself included, are in a state of shocked disbelief."-- Congressional testimony this week
"I'm shocked, shocked to learn that there's gambling going on in this establishment." -- Casablanca, 1942
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There can be no doubt that the CDO/CDS bubble (and that’s where the real bubble was) happened on Greenspan’s watch. From his testimony this week, he knew the bubble was growing explosively, uncontrollably a year before he resigned.
There can also be no doubt that Greenspan’s policies had a lot to do with it, and that he was being a neo-classical ideologue. He studied at the foot of Milton Freidman, he was personal friends with Ayn Rand. You don’t get better conservative bona fides than that.
But the wily investors got out of this mess long before you and I heard about it. According to interviews from Planet Money’s “A big pile of money” broadcast, the smart guys on Wall Street started to pull back from CDOs, CDSs, and the sub-primes they were spawning, in the fall of 2006. They kept their secret for a year, looking for greater fools to sell to.
Now that the whole thing fell apart, they’ve found the greatest fool of all — governments around the world — to keep the financial system from collapsing. This IS the right thing to do: the credit markets and the ATMs have to work for the economy to function. But there must be a reckoning, given the $30 B in bonuses that Wall Street executives gave themselves last year.
WiseUP! This isn’t a case of a few greedy people: it was an entire system of markets all doing “what they were supposed to” — without any controls. When it all blew up, the wily investors were already gone. Now it’s time for us (we’re all investors now) to put in new restrictions for a market that can never police itself.
