Wall Street, small street

We’ve gone from the Greenspan put to a US put­down

Finweek English Edition - - Something Els -

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 frike@fin­week.co.za

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