Bob McPhail 4:30 p.m., Sept. 16
Government Manipulate Stocks? Greenspan's Faulty Memory
USA Today says that former Federal Reserve Chairman Alan Greenspan thinks a stock market rally will do more to boost the economy than various direct stimuli. Huh? He must be slipping severely. The federal government and Federal Reserve have been manipulating stocks since 1987, not long after Greenspan took over the Fed. The day after the 1987 crash, officials quietly manipulated stocks back up by buying stock futures. Shortly, the Reagan administration set up a committee to "observe" the stock market. That committee became variously known as the crisis control team or crash control team. It intervened to stem selloffs numerous times during Greenspan's term, and also the term of his predecessor, Ben Bernanke. Wall Street enthusiastically endorses Greenspan's proposal. Of course. Something like 80% of stock market wealth is controlled by a small percentage of people. They always use the argument that 50% of the public owns stocks directly or indirectly. That may be true, but 50% of the public (minus the top 4 to 5%) controls a small fraction of market wealth. So stimulating the economy by goosing stocks only benefits the chosen few -- the same ones who support Greenspan and his crowd. It won't stimulate the economy to any significant degree.
But the main problem with government and the central bank boosting stocks is that it can backfire. During the late 1990s, when tech and dot.com stocks were selling for wildly absurd prices, and I was trying to point that out, many people said they weren't worried: the government wouldn't let the market fall. Wall Street said the same: Greenspan wouldn't let it fall. It was called "the Greenspan put." But stocks crashed in 2000 and again in 2007-2008. The last thing any market wants is the big players believing it can't fall. History tells us that is when it plunges. Greenspan should read his history -- some of which he made himself.