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Five Things You Need to Know: "33"; Greenspan to Join Anonymous Anonymous Support Group; In the Shadows of a Giant; It's Spreading; Greenghostspan


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. "33"

Percent. That's 33 percent. Exactly the probability of a recession in the United States, according to the calculations of former Federal Reserve Chairman Alan Greenspan.

  • Yesterday former Federal Reserve Chairman Alan Greenspan reportedly told Bloomberg that there was a one-third probability of a recession in the U.S. this year.
  • "We are in the sixth year of a recovery; imbalances can emerge as a result," Greenspan told Bloomberg news. "It is possible that we can have a recession at the end of this year," he said.
  • Mr. Greenspan's new remarks follow on the heels of comments he made last week in Hong Kong that he believed a recession in 2007 was a possibility.
  • Some in the media picked up on the comments last week and viewed them as a contributing factor to the selloff in global markets.
  • Consequently, the Financial Times this morning is playing up a seeming "rift" between Greenspan and current Fed chief Ben Bernanke.
  • Just last week, even as Mr. Greenspan was backpedaling on his recession comments, downgrading his view from "probable" to "possible but not probable," Mr. Bernanke told Congress the economy may actually strengthen this year.
  • Meanwhile, yesterday Mr. Greenspan told Bloomberg, "I was aware of the problem that if I stayed public I could make it difficult for Ben. For the most part it has worked. I was beginning to feel quite comfortable that I was fully back to the anonymity I was seeking."

2. Greenspan to Join Anonymous Anonymous Support Group

"I was beginning to feel quite comfortable that I was fully back to the anonymity I was seeking," former Fed chief Alan Greenspan told Bloomberg news yesterday.

  • It's tough being in the public eye, no question about it, and achieving anonymity is no easy matter.
  • The road to anonymity requires discipline, conviction, and the ability to give up your old friends; those who would drag you out to your old familiar microphone and camera infested haunts.
  • So what has been Alan Greenspan's anonymity plan since leaving the Federal Reserve last January?
  • Let's take a look!
  • Like most of us who are struggling to maintain anonymity, Mr. Greenspan suffered his first relapse in February last year, hitting the speakers' circuit and addressing 700 people in Tokyo via satellite.
  • The first speech after declaring your anonymity is the hardest. After that, well, most of us find we all too easily slip back into our old habits: answering the phone, opening a consulting firm, charging for keynote speeches, picking up lifetime achievement awards in front of hordes of people.
  • Mr. Greenspan's next relapse occurred in March of last year, when he raked in an $8.5 million advance from Penguin Press for his memoirs, scheduled to be published this fall.
  • Doubtless, the hope at the time was that by selling his memoirs for the second highest advance ever, Mr. Greenspan would quickly fade from the front page of the New York Times to the cover of the weekend Book Review section, which accompanies the Times' wildly popular Sunday paper, and which is sold separately from the newspaper itself in bookstores everywhere in the world.
  • After an anonymous summer, apart from frequent paid speeches all over the world and televised testimony in June in front of the Senate Foreign Relations Committee on oil, Mr. Greenspan successfully withdrew from the public eye... except for that one time in September when he found himself keynoting the Massachusetts Technology Leadership Council fall meeting in front of more than 800 technology executives.
  • To our horror, we personally witnessed Mr. Greenspan stumble from anonymity in early February at the CNBC Executive Leadership Awards, where he was honored with an award on a show televised to nearly a hundred thousand people.
  • It gets worse. Apparently Mr. Greenspan recently fell off the anonymity wagon in front of 1,500 attendees (and another 300 tuned in via satellite) at the VeryGC Global Business Insights event in February at Gold Coast, Australia.
  • This all highlights how extraordinarily difficult it is to maintain anonymity, especially when one's struggles with anonymity take place in the public eye.
  • Most worrisome for Alan Greenspan's road to anonymity, especially for those of us celebrating multiple years of anonymous living, is this sign of recidivism (see below) from the Washington Speakers Bureau.

3. In the Shadows of a Giant

While his predecessor was gathering all the headlines yesterday, current Fed Chairman (and budding master of anonymity) Ben Bernanke made some important remarks on Fannie Mae and Freddie Mac that might have slipped through the cracks.

  • Federal Reserve Chairman Ben Bernanke yesterday said Fannie Mae and Freddie Mac should be restricted to holding home loans or securities that promote affordable housing.
  • Congress chartered Fannie and Freddie with the goal of expanding the amount of capital available to the residential mortgage market, and promoting homeownership among low- and middle-income households.
  • The two companies run two lines of business. One involving mortgage purchases from primary originators, repackaging them into mortgage backed securities (MBS) with enhanced credit guarantees, and reselling them to the public. The second, and most troubling for the Fed, involving the purchase of these securities and other assets for their own portfolios.
  • Because Fannie and Freddie are perceived as "too big to fail" and therefore as retainers of an implicit backing by the Federal Government, they are allowed by the market to borrow funds at a preferential rate and purchase assets that pay returns considerably greater than the Treasury rate.
  • And just like that they can enjoy profits on an effectively unlimited scale, Mr. Bernanke said.
  • The implications of this advantage, and the implied government guarantee and backing, is that the two GSE's pose significant systemic risks.
  • So what's the answer to reigning in Fannie and Freddie?
  • According to Bernanke, "A straightforward means of anchoring the GSE portfolios to a clear public mission would be to require Fannie and Freddie to focus their portfolios almost exclusively on holdings of mortgages or mortgage-backed securities that support affordable housing."
  • What does that mean?
  • According to the Wall Street Journal, "Meeting such a standard could potentially require huge sales by Fannie and Freddie of their holdings of mortgages and mortgage-backed securities, since less than 30% of those portfolios -- currently about $1.5 trillion in total -- are oriented towards affordable housing."

4. It's Spreading

You know all those problems in subprime and just above subprime mortgages that aren't spreading to other areas of the real estate mortgage market and economy? They're spreading to other areas of the real estate mortgage market and economy.

  • Problems in the market for mortgage backed securities has apparently spread to the commercial segment, according to the Wall Street Journal.
  • The cost of insuring mortgage bonds backed by office towers, hotels and shopping malls has jumped in the past few weeks, the newspaper reported.
  • The spread on the CMBX index that tracks riskier, BBB-minus-rated bonds has doubled to 1.64 percentage points this week from 0.84 percentage point on Feb 23, according to Markit Group, which administers the index, the WSJ reported.
  • "Moves of this magnitude and speed are uncommon," analysts from Lehman Brothers said in a report this week.
  • Morgan Stanley REIT analyst Matthew Ostrower told the newspaper he doesn't think the CMBX is signaling a real-estate bear market, but "looking at those index spreads, somebody's panicking. Somebody's concerned."

5. Greenghostspan

The Greenspan anonymity tale in Number Two, above, reminded us that, as part of his $8.5 million advance, Penguin Publishing is requiring former Fed chairman Alan Greenspan to hire a ghost writer to help give his memoirs more "pace."

  • Dame Marjorie Scardino, chief executive of Penguin's parent company Pearson, said Alan Greenspan had agreed to allow a ghost writer to help to "make [his memoir] more pacey - because Alan is an academic."
  • Dame Marjorie said, however, that the former US Federal Reserve Chairman is proving to be "a diligent author" who will definitely help his publisher to make a return on the $8.5 million spent to secure the rights to produce his memoir.
  • After a daring early-morning raid that did not involve the use or injury of small animals, Minyanville has uncovered a rough draft of a paragraph from Mr. Greenpsan's unedited memoirs:

Alan Greenspan's Unedited Memoirs, opening paragraph:

"We may not be able to usefully determine at what point my contributions as Federal Reserve chairman and, later, ad hoc economic advisor, will slow or even reverse, but it is evident that the greater the degree of international flexibility, the less the risk of a crisis. Should globalization continue unfettered and thereby create an ever more flexible international financial system, history suggests that current account imbalances will be defused with modest risk of disruption."

  • Yeesh. After reading the excerpt above, we see what Dame Marjorie means.
  • Good lord, Sir Alan Shake Spear-me-in-the-brain so we don't have to read one more word of that horrible prose!
  • That text is dry as West Texas dust! It's as exciting as a fly in an ice cube! Greenspan doesn't need a ghost writer, he needs a ghost rememberer!
  • Ok, enough. Even though we got plenty more of those, we'll stop because you get the point: Dude needs a ghost writer! But who?
  • Minyanville managed to obtain a number of memoir paragraphs written by famous authors.
  • Below is that same Alan Greenspan memoir paragraph as above, massaged by potential ghost writers.
  • Alan Greenspan's Memoirs, as ghost written by Herman Melville:
    "Call me Ishmael. Although my real name is Alan Joseph Greenspan. Some years ago - never mind how long precisely - having little or no money in my purse, and nothing particular to interest me on shore, I thought I would sail about a little and see the watery part of the world, and periodically adjust short term rates to manage inflationary pressures and the occasional bout of undesirable declines in the general rate of inflation."
  • Alan Greenspan's Memoirs, as ghost written by Richard Wright:
    An alarm clock clanged in the dark and silent room. A bed spring creaked. A woman's voice sang out impatiently:
    "Alan, shut that irrationally exuberant alarm clock off!"
    A surly grunt sounded above the tinny ring of metal. Naked feet swished dryly across the planks in the wooden floor and the clang ceased abruptly. So far there is little evidence to undermine the notion that most of the productivity increase of recent years has been structural and that structural productivity may still be accelerating."
  • Alan Greenpan's Memoirs, as ghost written by Thomas Pynchon:
    "A screaming comes across the sky. It has happened before, but there is nothing to compare it to now. It is too late. The evacuation still proceeds, but it's all theatre. The federal funds rate must rise at some point to prevent pressures on price inflation from eventually emerging. There are no lights inside the cars. No light anywhere."
  • Alan Greenspan's Memoirs, as ghost written by Hunter S. Thompson:
    "We were somewhere around Barstow in 1998 on the edge of the desert when the drugs began to take hold. I remember saying something like "I feel a bit lightheaded; financial intermediation, although it cannot alter the underlying risk in holding direct claims on real assets, can redistribute risks in a manner that alters behavior." And suddenly there was a terrible roar all around us and the sky was full of what looked like huge bats, all swooping and screeching and diving around the car, which was going about a hundred miles an hour with the top down to Las Vegas."
  • Alan Greenspan's Memoirs, as ghost written by Franz Kafka:
    "Someone must have been telling lies about Alan G., for without having done anything wrong he was arrested one fine morning. His landlady's cook, who always brought him his breakfast at eight o'clock, failed to appear on this occasion. That had never happened before. G. waited for a little while longer, as the conceptual share of the value added in our economic processes expands further, the ability to think abstractly will be increasingly important across a broad range of professions. Critical awareness and the abilities to hypothesize, to interpret, and to communicate are essential elements of successful innovation in a conceptual-based economy."
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