Re: [Geege] It takes one nanosecond to sell stock, btfw.

Rohit Khare (
Sun, 9 May 1999 18:11:19 -0700

>Everyone knows it's Alan Greenspan, who was first appointed by a Republican,
>who gets credit. He has a deft (light) touch; he doesn't meddle.

My oh my... in the Viagra age, it's no surprise to see 'Greenax' as
one more drug to magically make any price line more vertical.

But mind you, no central banker 'makes' an economy. Our net
production of stuff is only improved by the application of more
talent to making stuff better than we did last year. And $20-cheaper
tables at IKEA might be nice, but there's damn few of even 10%
efficiency increases in the vast mass of American

I am fascinated by the "Committee to Save the World" hype (per Time).
The truth is that ol' Al, our mortal instrument of monetary control,
is like a scout leader running a Pinewood Derby. He can set the slope
of the track (the prime rate), and the only question is how many cars
can make it up that hill. The steeper it gets, the better-engineered
the cars have to be. But he has no control of car-making technology,
car-making incentives, car-making styles, or anything else. And he
has to make sure (by law) that at least 95% of the scouts end up in
the winner's circle.

Now, each car is a business plan: some combination of staff,
technology, and managerial grease. The commodity inputs (however
meager, as for a home-based freelance writer) are the gas -- and your
mileage may vary.

Alright, I give up. It's a silly analogy. So abandon metaphor and go
for reality. The only thing that creates new wealth is my decision to
get up in the morning and DO SOMETHING. Sometimes it's something I
can do on my own for my own taste, like make breakfast. But when I
sit down to launch a new business, I have a business plan with a
consequent expected internal-rate-of-return and variance about the
mean (risk, or in particular beta against an industry).

Now, while there is still a raging debate over the proper parameters
for the Capital Asset Pricing Model (CAPM), it's still basically true
that people want more profit for more risk. But all Greenspan -- the
entire banking pyramid, from the Fed Funds rate to Omerta Express
snebbish cards -- can do is decide which plans get funded by settin
gthe hurdles. If my money can make more in the bank, I don't invest
it in Joe's new widget.

Low interest rates allow a lot more ideas to get funded -- and a lot
more really silly enterprises (which can actually destroy value,
too). The rate can control how many people are sitting on the
sidelines (employment).

But suppose every decent idea has been funded at, say, 5%. All you
can now add to the race are the plans which eke out a mere 4% return
-- or are 1% odds of making 400% -- which are ALL less sound than the
business plans already out there.

So in Japan, they're saying (if there was a sound banking system),
look if you have even the world's silliest idea -- an iMac-style
toilet, say -- then we'll fund it if you can give us even a penny on
the dollar each year. The fact that they're still suffering is
testament to either the 1) doltishness of the entire vaunted Japanese
manufacturing juggernaut or 2) the fact that every one KNOWS the
system is unsound -- and that deflation is about to set in, so even
keeping a dollar in a mattress is a better return than investing if
you're sure iMac toilets will be selling for 98 cents next year.

Anyway, enough of the pint-sized economics lessons. Nothing we can
say here will change mass psychology -- mathematics so rarely does.