Wall Street, small street
We’ve gone from the Greenspan put to a US putdown
WHILE SOUTH AFRICANS have been concentrating on the possibility of a split in the ruling party, an altogether more consequential – for our everyday lives – split has occurred in recent months. I’m writing about the split – or my favourite economic neologism; a decoupling – between the fortunes of the SA economy and markets and those of the United States. It’s far from a complete break-up. Just like I believe a split in the ANC will never be complete… but there’s enough evidence out there.
The hoary old saying – “When America sneezes the rest of the world catches a cold” – has now been turned on its head. As one Jo’burg newspaper put it: “SA will catch a cold from America’s flu.” What great news. Even five years ago, the calamitous events now happening on Wall Street and in the City would have sent the rand to $1/R15 not $1/R8,30 and the JSE would have had to shut up shop. Despite all the talk about the recurrence of a Thirties Depression, there’s little evidence of it in the real world, not even in the US. (Thanks, my China. And my India.)
It wasn’t always that way. The collapse of Long-term Capital Management sent proverbial shock waves through the financial world during the Asian financial crisis. Remember how the South Koreans were asked to bring in their gold jewellery for melting by its central bank to shore up the currency and the Russians bailed out of the Motherland as fast as they could buy British visas?
Compared to the trillions of losses now piling up, the Wall Street and the Fed would give their eyeteeth to have only an LTCM to bail out. But back in 1998 the paltry figure of $3,6bn required to save the hedge fund “which was too big to fail” (it’s all relevant; just ask the Lehman Brothers – I think they’re called Cheech and Chong – who, along with AIG, Merrill Lynch and others put up some of the money) sent shares and currencies crashing in the developing world.
At the time, I wrote about the fundamental unfairness of having nightmares featuring Chris Stals as the repo man just because Nobel Laureate economists (LTCM had two on its board) screwed up. If that was how “efficient markets” and “rational expectation” hypotheses were supposed to work, Milton Friedman and his cohorts should rot in their graves.
If that sounds harsh it’s because after 10 years I can’t get the image of Alan Greenspan attacking me with a sledgehammer out of my head. But we’re now seeing the reputation of all the great American capitalists going from gods to dogs. Greenspan’s sighs and posture during his interminable speeches used to be dissected here as in the US. Now he’s a popular scapegoat for all the years of being rate cut trigger-happy.
Ben Bernanke? He seems as baffled as everybody else on Wall Street. Just how few people know what the hell is really going on is clear from what happened to actor Michael Douglas. Douglas played the lead in the movie Wall Street more than 20 years ago. That didn’t stop reporters calling him Gordon (he played the “Greed is Good” investment banker Gordon Gekko in the film) and asking him for his insights into the credit crisis at a recent press conference.
Instead of tossing and turning over Hank Paulson’s next move, tonight curl up with a good book. I suggest
FRIK ELS email@example.com