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31st January 2006 marked the fall of the old era and welcomed with the new horizon – Retirement of Federal Reserve (Fed) Chairman, Mr. Alan Greenspan who served the post for 18 years.
For nearly 2 decades, he was treated as a man of last resort whenever there is a economic crisis. The crash of Dow in Black Monday, October 1987, 90/91 economic downturn, the collapse of Long Term Capital Management (LTCM) in October 1998, the aftermath of Tech Bubble after 2000 are few examples. He believed to have magic hands who could turn an economic downturn back on track by using his monetary policy of manipulating key interest rate. The whole world is lead by him whether the economic will be “soft landing”, “hard landing”…etc. The blind faith of whole world that putting on him made him as the “God” who can rescue the world whenever there is something happen. His retirement made us worried that his successor could safeguard us when there is something happen in the future.
While Mr. Alan Greenspan might have his contribution, we need not overstate it. Take an example, few days before the meeting of the bankers to save LTCM, Alan Greenspan had testified to the House Banking Committee that ‘hedge funds were strongly regulated by those who lend the money. With the LTCM debacle, the belief that Alan Greenspan knew whereof he spoke, a central tenet of the Fed’s status, had been put in hazard.
Saving is a good habit. Why we save when actually we can consume it immediately? Why we so stupid to save $50 when we earn $100 and at the same time other who earns same amount consumes all $100 he earns? The worst case is the one who earns $100 but consumes $1000! It seems ridiculous but in reality, it happens in real estate market.
When we buy a house, we are allowed to take out a small portion, such as 10% or even less to buy the house. While it is good for housing developer and all related parties such as broker, financial institution...etc, it is pity for us as a consumer of this real estate business. People may argue that buying house is for "investment" purpose because "price of real estate is always going up" and at the same time could generate a positive cash flow. This is true when a mortgage loan rate is at the all-time low in the history, cash is piling up after a Tech Bubble in 1999/2000 because everyone with money seeking a haven to park their money, easy credit could be obtained by a consumer in term to boost up a consumer market, a housing bubble is created because of these factors. What people forget is "A boom is just capitalism's way of setting up the next bust."
People need to remember that markets do not punish the greedy nor do they necessarily reward the virtuous and frugal saver. Markets are amoral. The outcome is determined by "Good decisions" and "Bad decisions". While timing is important -- when you get in and when you get out, finding a good business and what the price you are paying for determines your outcome.
31st January 2006 marked the fall of the old era and welcomed with the new horizon – Retirement of Federal Reserve (Fed) Chairman, Mr. Alan Greenspan who served the post for 18 years.
