Tuesday, December 29, 2015

Climateer Line of the Day: Perils of Prognostication Edition (or was Greenspan just a straight up con man?)

Canada's Financial Post has a column, "Why oil forecasting is a crap shoot, and free oil for the world ain’t going to happen" that includes this tidbit:
“Today’s tight natural gas markets have been a long time in coming, and futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon,”...
-Alan Greenspan, testimony to Congress, June 2003

At the time natural gas was at $6.31.
On December 18, 2015 it traded as low as $1.684 before starting this really fun run to $2.36 this morning.

I am reminded me of another Greenspan pitch that we first wrote about back in April 2007 and expanded upon in January 2008.

Cue the soundtrack:

And now, a tale of how a lot of folks with adjustable rate mortgages got stung:

The Set-up
"...American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."
-Alan Greenspan
Speech to the National Credit Union Association
February 23, 2004
The Score
The $ 3 Billon Payday In today’s Journal Gregory Zuckerman brings us news of the biggest one-year salary ever paid on Wall Street — that of hedge-funder John Paulson, who made somewhere between $3 billion and $4 billion last year. That’s right, between $3 billion and $4 billion. In one year. 
...Mr. Paulson made his pile by betting against the housing market at just the right time. Lots of people bet their money on a housing crash, but they were too early — his bets happened to coincide with a crash in the debt markets.

The Wall Street Journal's Wealth Report blog.
January 15, 2008
The Payoff
Greenspan joins hedge fund Paulson
Alan Greenspan, the 81 year-old former chairman of the Federal Reserve, is set to join the US hedge fund Paulson & C. as an adviser. 
Dr Greenspan will advise Paulson on the global financial markets, and under the terms of the agreement he will not advise any other hedge fund while he is working for Paulson.
Paulson manages $28bn of assets and last year earned billions of dollars when it called correctly the collapse in the sub-prime mortgage market, a collapse which was caused by Dr Greenspan who kept interest rates too low for long, according to some economic commentators....
The Telegraph
January 16, 2008
The Stinger
Anna Schwartz blames Fed for sub-prime crisis
..."There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for," she says.

...She is scornful of Greenspan's campaign to clear his name by blaming the bubble on an Asian saving glut, which purportedly created stimulus beyond the control of the Fed by driving down global bond rates. "This attempt to exculpate himself is not convincing. The Fed failed to confront something that was evident. It can't be blamed on global events," she says.
Professor Anna Schwartz, co-author with Milton Friedman of
"A Monetary History of the United States"
The Telegraph
January 14, 2008

The End

*The Sting was based on a great sketch of human nature, The Big Con: The Story of the Confidence Man by David W. Maurer.
**tag-line from the movie poster.

There's a saying in the con world: "You can't con an honest man". Here's the opening scene from the movie; it makes the same point.