Wednesday, April 27, 2011

Lost in Conversation

The Financial Times headline (April 25) spoke of “PepsiCo anger over Fed inflation guide”.

Wonder what possible beef a cola maker would have with the Fed?

Let’s read:
PepsiCo’s chief financial officer has criticized US policymakers’ focus on “core” inflation, arguing that it overlooks the impact of rising prices on consumer spending power.

The Federal Reserve’s preference for the core price measure that excludes food and energy has stirred controversy as commodity price rises have accelerated and companies have had to judge how much they can pass on costs to hard pressed consumers ... Food prices have climbed nearly 3 per cent in the past year and petrol prices have increased nearly 30 per cent, according to the labour department’s latest consumer price index.

During the same period, “core” prices rose 1.2 per cent.
So, food prices in the U.S. have gone up 3% in the last year; gasoline, 30%. But the Fed does not count them towards the overall price rise. Rather, it measures the price of some “core” items that have gone up only 1.2%. That is the official inflation of the country according to the Fed – 1.2% – the 30% fuel price and 3% food prices rise notwithstanding.

O.K, nice summary, you say. But it does not explain the anger of PepsiCo's CFO.

The explanation is that he wants to raise the price of his snacks and beverages but without the official fig leaf of the high inflation index, cannot do that.

But Nasser, if that is so, shouldn’t the CFO of Coca-Cola also be angry?

Good question. For the answer, let's go to today’s FT, under “Coca-Cola sales up despite rise in costs”:
Coca-Cola, the world’s largest soft drinks company by revenues, said on Tuesday that its sales had grown around the world during the first quarter, in spite of rising commodity prices and political turmoil in several of its markets.

The company added that it was carefully navigating an environment of rising food and energy prices, and said it would look to raise the price of some of its brands by 3 to 4 per cent later this year. Coca-Cola said it would begin selling smaller bottles in more markets for the same prices.

“We have a very flexible model in terms of managing revenue effectively,” Muhtar Kent, Coca-Cola’s chief executive told the Financial Times. “You will not see us making blanket price increases across all packages.”
The CEO of Coca-Cola also confirms the price hikes in the food and energy sectors. But because his company is large, he has other tools for offsetting the costs; no “blanket prices increase” for them. All large companies that dominate the consumer goods market enjoy this privilege. From the FT of April 4, in an interview with the CEO of NestlĂ©:
Q: How are you coping with it [input price rise]?

A: You don’t do it with pricing. Consumers don’t like that. You have to see the trend and work your organization on that line which is more stable, and that’s where our procurement, and how we are linked with so many farms, helps us.
Do not be put off by his words which seem to have no meaning. He sounds vague precisely because the methods through which his company passes the price rise to consumers are subtle and cannot be explained in simple sentences. But the entire production process – starting from the cows – will be squeezed. That's the how-we-are-linked-with-so-many-farms part.

The moral of the story is that size matters. Large companies have more way of absorbing the rising costs and stealthily passing them onto the consumer than smaller companies.

Meanwhile returning to the Fed, we are not clear about the controversy over the “core” inflation. What is it all about? The FT story explains:
The Fed argues that core prices are a better guide to underlying price pressures in the economy and therefore to future inflation – if it responded to headline prices, then it would have been forced to raise interest rates sharply in 2008 just as the economy was going into recession. But it has struggled to communicate this argument.
I like “headline prices”. The "headline" adjective is the handy device of rogue politicians whenever they make unpopular decisions to benefit their handlers. Going against the popular will is supposed to show their firmness of conviction. In this way, they think that they turn their obedience to power into a positive trait. Think Tony Blair and George Bush.

“Headline prices” is used in the same vein. It implants in the readers' mind the belief that the Fed has higher standards, above and beyond what is reported in the headlines. Never mind that the 30% price rise of gasoline is real and the result of the Fed's own policies.

But that is the excuse that the public hears. What is the real reason that the Fed does not include food and energy prices in its calculation of inflation?

For starters, the Fed's policies are behind the price rise in these sectors, as we have already seen.

But seriously, I hear you asking, What is the “core” inflation stuff? How is it constructed? How did it come to be what it is?

The April 25th article gave the answer in the form of a comical exchange:
During an event in Queens, New York, last month, William Dudley, president of the Federal Reserve Bank of New York, was heckled when trying to explain the disconnect between food prices and other prices.

One member of his audience questioned when he last visited a grocery store and another asked if an iPad – which he argued was getting more powerful for the same price – was edible.
The let-them-eat-iPad exchange is quite telling. (I wonder if any one of the hecklers was knitting intensely!) The rabble talk of food prices, Dudley talks of the iPad. Recalling the incident, he must have had a good laugh with his colleagues. Those ignorant Archie Bunkers, uncouth and unkind; what do they know about measuring the inflation?

Food items are generally commodities. The iPad is a manufactured product, produced by labor. With the labor costs constantly being pushed lower by advancing technology and increase in labor efficiency, iPad prices have remained constant, or even declined. That is what the Fed’s “core” inflation measures. Inflation, as used by the Fed, measures the excess manufacturing capacity. It has a totally different meaning and purpose than the one used by commoners in their everyday lives.

Therein lies the disconnect between the detached central banker and the rabble – and the businesses like PepsiCo which make money off of them.

Sunday, April 24, 2011

A Philosophical Note on an Inauspicious Anniversary

The expression something “catching up” with you or “creeping up on you” are the people’s way of referring to a phenomenon that you notice not because you are particularly perceptive but because the phenomenon forces itself upon you; you could be dumb as a mule and yet, you will notice it because, like the impact of a whip, there is no escaping it. Old age, for example, creeps up on you. It eventually catches up with you.

Nothing creeps up on you and catches up with you like dialectics, if you live in an advanced Western society.

In his Critique of Dialectical Reason, Jean Paul Sartre has a relatively lengthy passage about the Chinese peasant destroying the forests in search of arable land. He writes:
But above all, deforestation as the elimination of the obstacles becomes negatively a lack of protection: since the loess of the mountain and peneplains is no longer retained by the trees, it congests the rivers, raising them higher than the plains and bottling them up in their lower reaches, and forcing them to overflow their banks. Thus, the whole history of the terrible Chinese floods appears as an intentionally constructed mechanism ... The peasant becomes his own material fatality; he produces the flood which destroy him.
Here, Sartre is exploring the broader relation of man and nature, but you see his point about the peasant becoming his own “material fatality”.

It is amusing that a mere 50 years ago, the perceptive author of a book on dialectics had to reach to a far away land in search of a suitable example of self-destructive conduct.

Every page of Speculative Capital, like every movement of speculative capital, contains one such example.

The comparison is not totally accurate because Sartre is talking about the relation of man and nature, you say?

That brings me to the inauspicious anniversary of the destruction of the Gulf of Mexico. I am thinking of course of British Petroleum.

BP is the old Anglo-Iranian Oil Co. If you are a student of history or Middle East politics, that would say it all. Long before the protection of the environment and workers' safety had impressed themselves upon the general consciousness, the British expatriates in Iran wrote of the callous and criminal disregard of the company for the environment and human life alike.

In the British way, the tradition continued. At the time of the explosion of the Deepwater Horizon in April 20 last year, BP had 760 “egregious, willful” violations of safety and environmental rules and regulations. ExxonMobil had 1. In all, 97% of all violations handed out by the Occupational Safety and Health Administration in the U.S. were for BP.

Let me now give you another astounding statistic: 1 out of every 6 pound of pension money paid in the UK – about 15% – comes from BP.

With Cameron’s Great Society scheme, in which the private corporations are to take over the government function, and with the inevitable pension privatization that will follow, how do you restrict, never mind punish, BP?

The answer is that you cannot. BP's destruction of the environment and its handing out handsome dividends go hand in hand. They are two sides of the same coin. Only by having 760 “willful” violations, by totally disregarding all environmental concerns, could BP produce sufficient profits to keep the UK pensioners in relative comfort.

And it is not only the British people or the government. Cash-strapped U.S. consumers have the same attitude. Financial Times, Apr 20:
New polls show a majority of voters disapprove of his [Obama’s] handling of the economy. They also increasingly believe the US ought to increase drilling for oil and natural gas in US waters, a sign of their concern at skyrocketing petrol prices and, analysts say, the belief that the White House is dragging its heels on the issue.
Drill baby, drill!

If you can read this, Monsieur Sartre, I say forget the Chinese peasants. They did not know what they were doing. And when their error was pointed out to them, they stopped. They could afford to stop. What would you say about this situation?

In the same book, Sartre wrote:
The dialectic reveals itself only to an observer situated in interiority, that is to say, to an investigator who lives his investigation as a possible contribution to the ideology of the entire epoch and as the particular praxis of an individual defined by his historical and personal career within the wider history which conditions it.
Nice words, these. What Sartre did not tell us – it probably did not occur to him – was how uncomfortable the dialectic could be when it breathes down your neck when you are in the position of interiority!

Sunday, April 17, 2011

My Contribution to the Discourse on the U.S. National Debt Reduction

You all know of the “Elephant Man”.

The society ladies and gentlemen of the London Victorian era discovered a man with severe physical deformities and turned him into the object and evidence of their compassion.

Their newspapers made sure that the rabbles were not kept in the dark about the magnanimity of the upper classes. Fine ladies of London dining with that poor thing. Imagine!

That is how you know of the Elephant Man, which goes to show the meaning of news: it is what the powerful want you to know, follow and have an opinion about. Yes, they will give you the opinion too. You could keep it, as if it were yours.

The latest Elephant Man is the national debt. By now, you know everything about this deformity, how horrible it is. It mortgages the future, saddles unborn babies with legal obligations. And those “bond vigilantes”, ready to rip the economy into pieces if they see the slightest lack of resolve to reduce the debt.

After the European countries, now it is the U.S.’s turn to put its house in order. You heard the man on Wednesday: it is debt reduction or bust.

But I was talking about the Elephant Man. Let us continue with the analogy, which naturally takes us to the society parties. Gillian Tett writing in the Financial Times of December 20, 2010:
Why has Britain managed to boldly go into fiscal territory which the US has hitherto ducked? That is the $800bn question in the air in New York this weekend, after George Osborne, British chancellor, visited the city.

During his whistle-stop tour, Mr. Osborne met a host of Wall Street and New York luminaries, at a breakfast hosted by Tina Brown, the media icon, and a dinner arranged by Michael Bloomberg, the mayor. As he schmoozed he was greeted with emotions ranging from respect to rapturous applause.

That has nothing to do with Britain’s treatment of bankers: Wall Street is horrified by the ideal of a new UK bonus tax. What does provoke respect is the way London has not only created a multi-year fiscal reform plan, entailing a striking £110bn ($170bn) worth of adjustment – but, more importantly, starting to implement it.
Here we have a society girl, Tina Brown, and a society boy, Mike Bloomberg, giving parties in the honor of another society boy, George Osborne, in which he receives “rapturous applause” from the society people for his planned “adjustments”.

Adjustment is the FT word for cuts.

You are asking yourself: What the fuck do the-ladies-who-eat-lunch know about the UK budget cuts? More to the point, why would they care so passionately about the subject as to give Osborne rapturous applause?

But gentle reader, it is you who does not know – or rather, fail to instinctively grasp – your interests.

When the absolute value of the wealth of a society declines, either every group’s proportionate share of that wealth has to decline or, if one group is to keep the absolute value of its share intact, the share of other groups would have to decline. It is the inexorable mathematical logic.

The absolute value of the wealth generated each year in the U.S. has been declining for the past 40 or so years. The collapse of the Bretton Woods system in 1973 is the reference point.

The rich refused to accept a smaller share. They wanted the absolute value of their share of the wealth to remain intact. Naturally, then, the share of all others had to decline.

That is exactly what has been happening in the U.S. in the past 30 or so years. Ronald Reagan’s presidency is a good reference point. He cut the taxes for the rich and thus, helped maintain their wealth at the cost of reducing the government’s revenues.

His leitmotif that a “rising tide lifts all boats” said it all. “Rising tide” was the economic “recovery” that was supposed to result in increasing the absolute value of the national wealth pie in consequence of which every group’s share would also increase. And there was the con, the idea that giving more money to the rich would increase the country’s total wealth by invigorating the economy. In truth, the rich had begun demanding a bigger share of income – and got it in the form of tax cuts – precisely because the country’s total wealth and with that, the absolute value of their share of that wealth, had declined. Such a decline would not be stopped or reversed with tax cuts.

Regardless, the fix was in.

If the government’s revenues are reduced, it must either borrow money or cut the expenses – or a combination of both.

That is precisely what has been happening in the past 35 years with the successive Democratic or Republican administrations alike. The government borrowed money and cut from the poor and the middle class whenever it could; remember Bill Clinton’s “changing welfare as we know it”?

Thirty years later, the debt stands at $14 trillion. Bill Gross counts all the government commitments and says it is $75 trillion. His comments are given wide publicity. The more the better. It scares the pants off the rabble and sets the stage for even more ambitious projects on privatization.

The point to keep in mind is that all this was planned. It was part of the starving the beast strategy put into effect in the later 1970s:

  • cut the taxes to the rich to reduce the government revenue;
  • reduce spending and keep borrowing because the revenues have fallen;
  • begin the truly savage cuts after the debt has ballooned.

It is the third stage that we are in now. With the astronomical numbers being thrown around, deep cuts could conveniently be put on the agenda. It is only a matter of softening the ground of the public opinion. And what an easy task that is in the U.S.

That is why suddenly everybody has become interested in the “real issue” of the national debt reduction. It is a sign of sophistication. The society ladies applauding George Osborne, construction workers reading Murdoch’s New York Post, commuters stuck in traffic listening to demented talk show hosts, mothers on welfare – all want something to be done about the debt. (All are shouting ”the donkey is gone”.)

Observe, for example, this story from the FT’s front page under the heading US lacks credibility on debt, says IMF:

In an unusually stern rebuke to its largest shareholder, the IMF said the US was the only advanced economy to be increasing its underlying budget deficit in 2011 at a time when its economy was growing fast enough to reduce borrowing.

Carlo Cottarelli, the head of fiscal affairs at the Fund, was quoted as saying: “It is a risk that if it is materialized would have very important consequences … for the rest of the world.”
The thing you should know is that the IMF is encouraged, if not instructed, to issue an unusually stern rebuke to its largest shareholder. Else, it would not dare do that. Carlo Cottarelli, too, is a fool, a pawn. He comes out and ties the U.S. debt reduction to the well being of the world – maybe the Solar System or even the Milky Way Galaxy – without knowing what the shot is.

The fix is in.

Meanwhile, returning after several weeks from Europe, with the heightened sensitivity of a traveler, one finds the “look” of the New Yorkers in the subway and supermarkets decidedly downtrodden. They are are noticeably poor.

One question remains in all this. Why has the absolute value of the wealth in the country been declining?

Google the “tendency of the rate of profit to fall”, or wait for Vol. 4

Sunday, April 3, 2011

High Frequency Trading and Flash Crash - Part 7: The Living Dead as the Culmination of Contradictions

In Masnavi, Rumi tells the story of a man with his donkey who checks into a mid-way inn.

In the evening, walking around the inn, the traveler comes across a group in a celebratory mood and joins them. Unbeknownst to him, they are penniless students looking for ways to finance their party. Upon learning of his possession, they scheme to sell the donkey to buy food and drink for the night. The plan is carried out while the students mischievously dance and sing to the rhythm, “donkey is gone, donkey is gone.” The man joins them. They all had a jolly good time.

In the morning, he discovers that his donkey is gone. He grabs the innkeeper and demands damages. “You, so and so, how could you let them sell my donkey without informing me?”

The innkeeper pleads innocence. “Master, I came to inform you but saw you were dancing and singing that ‘the donkey is gone.’ I thought you knew it.”

For those who have been singing efficient markets to the tune of pranksters from Chicago, I have news.

In Part 6, I mentioned that the self-destructiveness of speculative capital should not be interpreted to mean that it is suicidal; speculative capital does not seek to destroy itself. Rather, it destroys the arbitrage opportunities that give rise to it.

What happens to markets in which arbitrage opportunities are destroyed?

The answer is that they become efficient markets. The textbook definition of efficient market is precisely a market in which arbitrage is impossible. Like derivatives, hedge funds, globalization and the rise in market volatility, efficient markets are a manifestation of a force that is speculative capital.

For almost 40 years, as the rise of speculative capital impressed itself ever more vividly upon the uncritical minds of finance professors, the “theory” of Efficient Markets gradually grew to the “theory” of Rational Markets, eventually becoming the official doctrine of finance in the West.

The premise was that the markets worked themselves towards a state in which everything was in equilibrium – supply and demand, buyers and sellers, bid and asked prices. In these markets, all the information was reflected in prices and no one had an advantage over others. What is more, everyone could buy or sell with ease, quickly, and with minimum expense. Naturally, these markets did not permit arbitrage because arbitrage arose from price discrepancies. The rational markets were, by definition, free of such impurities.

What is more, this state of efficiency came from the working of the markets themselves and without any outside interference. It followed, then, that the longer and harder markets worked, the faster they became efficient. Hence, the critical role of continuous-time trading. The incessant, round-the-clock trading appeared as the logical means for taking society to this financial Nirvana.

In Vol. 1, I commented on this world view and pointed out that a system in equilibrium is a dead system. That was a theoretical statement. Thirteen years later, we have the evidence before us in the form of the U.S. equities markets. Tony Jackson of Financial Times in paper’s December 12, 2010 issue, under the heading, Behaviour of equity markets poses fundamental questions:
What are the equity markets for these days? In the developed world, at any rate, they no longer seem trusted as a store of value or a source of income. Nor are they much use at providing capital to businesses, which should be their primary function.

The quality of information they provide is, meanwhile, deteriorating.

Daily index movements are often a by-product of larger external forces. Individual stock prices tell us little, since they move in lock-step. And volume is meaningless, since may be half of it now consists of information-free “flash” trading.
So it has come to this, that the premier financial newspaper covering the markets questions whether the equity markets have any purpose at all.

Could it be that the high-frequency trading firms have rigged the game, destroying the market just to make themselves rich?

The answer is No. They, too, are struggling. In 2009, the Dutch HFT firm Optiver with 600 employees made a puny €6.3 million profit. And recall from Part 6 that the average trading profit of HFT firms is rather low; 26 largest HFT firms, trading over $30 trillion stocks annually, made a relatively modest combined $3bn a year.

One constant drag on the profit of HFT firms is the high cost of upkeep of software and hardware; they must be constantly upgraded to match the capabilities of the rivals who are engaged in the same “arms race.”

What gives, then? Why all the activity and hassle – billions of transactions a day, hundreds of millions a year in system upgrades and programming – only to generate very little profit and, in the process, harm the system to the point that it is raison d’ĂȘtre is questioned?

The answer is that that is the way markets exist under the dominance of speculative capital.

Let me elaborate.

When I speak of destruction in relation with speculative capital, the word is liable to conjure up images of physical destruction because that is what a modern citizen of the world is conditioned to imagine; that’s all he sees on TV.

Physical destruction has finality. It brings the physical aspect of the story to an end. A beach is destroyed by the sea and that is the end of the story.

Social systems are different. A social system is destroyed only when it is replaced.

Speculative capital destroys the markets by replacing their traditional set-up by one tailor-made for its own purpose.

The destruction is set in motion with the intrusion of speculative capital into a market in search of arbitrage opportunities. Speculative capital brings in trading volume and commissions, so markets are eager to accommodate it; recall the Istanbul Stock Exchange’s concessions to FH traders from Part 5.

After the market is thus “opened up”, there is no going back, even after the arbitrage opportunities are grazed. The market – now “efficient” precisely because it cannot be arbitraged – becomes conduit for the movement and expansion of speculative capital to other segments and markets. And unlike the traveler’s donkey, it does not go away. It stays put.

The critical point to bear in mind in all this is that the changes taking place on behest of speculative capital facilitate the movement of speculative capital. That is their primary purpose. To the extent that there are other effects, those effects are secondary. So, the U.S. equities markets in which specialists were responsible for market-making being replaced by HFT firms in which no one is in charge, is a mere by-product of changes taking place at the service of speculative capital. If the changes prove harmful to social institutions – and they must be harmful, as I show in Vol. 4 – that is regrettable but understandable. Markets are messy and stuff happens, which is why we have a modern expression like collateral damage. You know how the argument goes.

So, “people” are not a part of speculative capital’s calculus. People facilitate and bring about the changes demanded by speculative capital; as a thing speculative capital cannot change laws, place trades or initiate mergers between the exchanges. In spearheading these activities, people are compelled to serve the interests of speculative capital. Compelled, because how many exchange executives do you suppose could turn down the prospect of higher trading volume and more commissions? And how long would they last if they did?

In this way, people become the agents of speculative capital. “Speculative capital becomes the grammatical subject of the sentence as if it were alive”, I wrote years ago.

We have a peculiar condition in front of us, then: a dead market, in the sense that it no longer serves any purpose, being maintained by feverish activity – not respectful and measured, even if expensive, activity, as with the Pyramids, but feverish, high-tension activity of HF traders.

But the dead do not require feverish activities to stay dead. That is the province of the living.


The U.S. equities market under HF trading has become a living dead – that stuff of Hollywood B-movies. Please do not be dispirited by the contradiction. I wrote about it more than two years ago. Things have merely intensified.

The evidence on both sides is incontrovertible.

The market is dead because it cannot be trusted as a source of value or income, it cannot provide capital to businesses, individual stock prices move in reaction to the broader index, etc., etc. The list is a legion. You saw the indictment above.

Yet, the market is also living because it is capable of inflicting real damage on itself and others by inducing flash crash.

Thus Spake The Maestro

On a European train I caught up with the newspapers I had been carrying from New York. This was in the Financial Times of March 23:
Alan Greenspan, former chairman of the Federal Reserve, argues that the decline in the share of liquid cash flow that US companies choose to allocate to illiquid capital investment stems from uncertainty in business arising from the surge in government activism since the collapse of Lehman Brothers.
“The decline in the share of liquid cash flow the US companies choose to allocate to illiquid capital investment” means that the US companies are not investing the cash they earn from their operations. The statement is accurate, its circumlocutional form notwithstanding. When companies do not invest the money they earn, the cash balance on their bank accounts grows. The growth is reported in accounting statements, specifically in the balance sheet under cash (assets).

The 500 largest U.S. corporations that comprise S&P 500 index hold over a trillion dollars in cash, an off-the-chart sum compared with the historical average. The accumulation began right after the financial crisis and has continued to day. The well-known “development” has been the subject of extensive commentary. I mentioned it a few times on this blog. The point of concern is that the corporations make money by investing: converting money to capital. Cash, whether in a bank vault or under a mattress, does not increase by a cent. For that, it has to be thrown into production or circulation circuit. So a large cash balance – above and beyond what is needed for the operations – is a misuse of capital, a particularly egregious sin in the age of efficient markets.

The question is why has this been happening?

Greenspan is saying that “government activism” has created an uncertain business environment; the big businesses in the U.S. are not investing because they are scared stiff of what government might do to them through regulation. That’s why, he implies, the economy is not improving and the unemployment rate remains near an all-time high.

What is the evidence for that assertion – that the corporations are not investing because they are afraid of the government?

There is no evidence. Nothing. Zilch. John Plender who reported the quote felt compelled to ask:
But if you think the Obama administration is likely to impair the value of any capital investment they make, why are business people bidding up the value of their stock through buy-backs which increases their exposure to their own existing illiquid assets that would presumably be vulnerable to the same uncertainty?

As Brad DeLong of the University of California at Berkley argues – more plausibly in my view – business is reluctant to invest because capacity utilization is low and demand for its products is weak.
That is the he-said-something-that-I-might-have-disagreed-with kind of disagreement that T.S. Eliot mocked for the intellectual vacuity that it is; those dead on the London Bridge, and you know they were so many! Brad DeLong of Berkeley is also being timidly wordy with “capacity utilization” and “weak demand”. What he means is that businesses do not invest because they cannot generate profits.

That’s all. Period. Everyone knows that. Dogs probably know that; you need not be a Berkeley professor. Here is from the same paper a week earlier, under the heading “Companies face difficult calls on returning cash” (I said that it is a subject of concern):
So widespread has been the move towards returning extra cash to investors that examples of three different ways of doing so were on display just last week .. Even so, shareholders typically do not want payouts today to come at the expense of investment that will sustain business growth tomorrow.
You got that about the shareholders? They do not want to get cash back at the expense of investing in business opportunities. Of course. They have invested capital in the companies and want it to work as capital so their wealth will increase. They have no use for cash else they would not have invested it in the first place. So they take back cash only when companies assure them that there is no use for it because there are no investment opportunities.

Later in the same article:
Richard Pennycook, the finance director of WmMorrison which last week announced a £1bn ($1.6bn) share buy-back programme over two years … having consulted shareholders over the course of the past six months, he says: “They were certainly keen to get reassurance that we were making all the investment we wanted to make in the business.”

Yet Alan Greenspan “argues” that the U.S. companies are accumulating cash because they are afraid of the government. And he is saying that about an administration that continually bends backward and forward to accommodate business interests.

And no one challenges him, except in the politest, most indirect way somewhere in the back pages in the middle of a paragraph.

Why is Greenspan saying that?

The word “why” could have two contexts. Let me answer both.

He is saying that because in his new capacity as consultant to businesses, he wants to score brownie points with his bosses. Verbally attacking the government costs nothing and if echoed from enough corners, could dampen the already dampened regulatory efforts.

And he is saying that because he is a shameless, unprincipled buffoon. As the chairman of the Federal Reserve, as an economist – as someone who ran an economic consulting firm – it is impossible for him not to know why companies pile up cash. But because he is an opportunist, in addition to being a shameless, unprincipled buffoon, he comes out and says something totally, absolutely, utterly drivel – say, that the earth revolves around the sun because WalMart has a sale on old astronomy textbooks – because it suits his personal interests.

This character was put in charge of the Federal Reserve, was made into a worship-worthy Maestro by a sycophant press – boy, how deep were his thoughts, his statements! – and was given a free hand to have his way with the U.S. economy for 18 years.

And he did. Oh, boy, how he did.