Mobs, Messiahs, and Markets

Mr. Bubbles

It was perhaps because he had been dozing among slippery bubbles that the chief of the world's chief central bank had come to believe that the basic pattern of nature could be thus overturned or postponed. Mr. Greenspan decided that the solution to a bear market and recession caused by too much credit, was—even more credit!

He must have hardly waited to dry himself off that day in January 2001 when the Fed began cutting rates like a lumberjack at a chainsaw contest. Down they came … faster than ever in history—a full 475 basis points over the next 12 months.

And it worked! Now, the Committee to Save the World was history—it was Greenspan who had saved the world single‐handedly. He had defeated the business cycle.

That was the amazing thing about the recession of 2001–2002. A recession usually corrects the excesses of a boom—which is why it is sometimes called a correction. People tighten their belts, reduce spending, and rebuild their savings. But in 2001–2002 consumers just kept on borrowing and spending. If this was a correction, it corrected nothing.

Was this a new era, with perpetual booms never followed by recessions … two steps forward and none back … gain without pain … Easter without Good Friday? Or was there another expla‐nation?

The gaming tables of the pros were enticing the widows and orphans into the casino. Now, even the little guys could draw aces. They, too, could arbitrage interest rates—borrowing cheap money against their homes to pay off credit card ...