This column by Doug Kass was originally published on March 19 at 8:12 a.m. EST on Street Insight. It's being republished as a bonus for TheStreet.com and RealMoney.com readers. For more information about subscribing to Street Insight, please click here .
I will be attending a private meeting with the former
Chairman Alan Greenspan this evening in Palm Beach, Fla.
Over the last week I have asked
subscribers to email me questions that they would like to be presented to Greenspan -- and, as mentioned, I plan to pick out the two best, which I'll share with you at the end of this column. I have received more than 250 questions for Greenspan from subscribers. Here are some of the best:
1. What is the best way for the banking system to deal with the large numbers of families and individuals who can neither afford their ARM reset payments nor a refinanced fixed-rate mortgage payment in order to limit bank losses and overall economic weakness (i.e., voluntary foreclosure, forced foreclosure, voluntary forced quick sale for a loss, etc.)? 2. Does Greenspan have access to the same information now as he did when in office? Is it as reliable? 3. Since 1975 the Fed has used margin requirements to exercise restraint or ease. Why haven't we used this tool to prevent some of the volatility and leverage in our system? 4. Could it be possible that cutting interest rates would be bullish, not bearish, for the dollar because cheaper interest increases demand for borrowing dollars? 5. What does he think of his encouraging the second round of tax cuts now. Or don't deficits matter anymore? 6. Why did he encourage homeowners to take out adjustable-rate loans in 2004? Didn't such advice ignore long-term trends? 7. Why isn't the Federal Reserve more proactive when it comes to federal debt, the deficit and the impact of inflation? 8. Why didn't he encourage the general public to look at their own situation from a balance sheet perspective? Shouldn't all investors understand their own capital and cash flows long before they ever start investing? Why doesn't the chairman use his position to further the education of the general public? 9. Why doesn't the federal government have audits and issue financial statements on every aspect of government? Why is the federal government exempt when almost every other public entity is required to have such an audit? 10. Why doesn't the federal government hire CFOs and pay them appropriately to manage the assets of the public? 11. What are the biggest threats to the long-term health of the U.S. economy, culture and standard of living? 12. Does he take any responsibility for the Fed's loose monetary policies and weak regulation, which resulted in a housing boom and bust? Is the Fed living up to its mandate of price stability? 13. Reflecting upon his chairmanship and the present state of the U.S. economy, does he believe that more transparency in his previous statements to Congress and the public would have helped prevent the exaggerated fund flows that led to the equity and mortgage loan market dislocations? Does he now support greater and more timely Fed disclosure of its economic assessments and recommendations vis-a-vis Fed monetary and regulatory policies? 14. How likely (or unlikely) is it that the subprime mess could cause a real estate crash that would trigger defaults and spread contagion to emerging markets? 15. Since he is no longer the Fed chief, why does he feel compelled to speak out on the economy? Isn't he undermining Ben Bernanke? 16. What is the real reason why the Fed quit publishing M3 vs. the announced reason that it was too difficult to calculate? 17. Does he believe that Milton Freidman's time frame for inflation to appear after the Fed expands the money supply is still valid? If not, what does he believe the relationship currently is? 18. Looking back on his tenure as Fed chief, what advice would he give Bernanke in regards to taking the air out of bubbles in a more laser-beam fashion so the entire economy/market doesn't have to suffer when one industry or sector gets overheated? 19. If he had known how leveraged the homebuyer would become, would he have voted for the last two or three rate decreases in 2003? 20. What does he believe was his biggest mistake while chairman of the Federal Reserve? 21. Does he believe that rates should be lowered or will be lower by mid-year 2007? Does the U.S. subprime and homebuilder problem materially affect emerging markets, particularly Asia? 22. Hindsight being 20/20, does he believe the reaction by the Fed to the "Y2K-impending-doom" -- the lowering of rates -- was an irresponsible and ridiculous reaction to media reports? 23. Is Vice President Cheney correct in saying "Deficits don't matter"? Does the deficit matter only as a percentage of the GDP? 24. Is the U.S. economy and national security on a sounder footing by investing in war as opposed to education? 25. Does he see the subprime problem as indicative of a class structure in the U.S. economy, where people at the lower tiers have to use economic tricks with huge risks in order to become part of the owning class? 26. Looking back, what would he have done differently regarding interest rates since 2000? 27. As former head of the Federal Reserve, is he concerned that his comments on economic direction have an unwelcome effect back at his old shop? 28. Does the Fed, or more accurately, did his Fed, have a view of itself as one stimulus in an infinite sum of stimuli that allowed the markets to be governed by stochastic (chance) events, or does the Fed view itself as the lead or primary element with the global goal of creating a "steady state"? 29. If the U.S. goes into a recession by year-end, how long does he think the recession will last? 30. The book, "Our Brave New World" by GaveKal Research makes a compelling case that we are in (or will soon enter) a global phase of deflationary boom. Would Greenspan agree with that assessment; if not, what does he think lies ahead -- inflationary bust or boom; deflationary bust or boom? Why has the dollar lost half of its value relative to both gold and oil in the last six years? 31. Can the Fed really stop inflation when government spending is out of control? 32. Does the inverted yield curve imply a recession or, due to global capitol flows, is it less significant? 33. What responsibility do public officials have after serving office to stay out of the crossfire? 34. Because markets pretty much do the job of the Fed in anticipating the general directions of interest rates, why have so many hung on every word he has said over the years? 35. What would his current advice be for those who took his recommendation three years ago and went with adjustable-rate mortgages, especially since many of those people cannot afford their current mortgage payment and can no longer refinance their mortgage?
And the winners are:
1) Looking back on his tenure as Fed chief, what advice would he give Bernanke in regards to taking the air out of bubbles in a more laser-beam fashion so the entire economy/market doesn't have to suffer when one industry or sector has gotten overheated? and
2) Why did he encourage homeowners to take out adjustable-rate loans in 2004? Didn't such advice ignore long-term trends?
Thanks very much to everyone for such spirited responses.
At time of publication, Kass and/or his funds had no positions in stocks mentioned, although holdings can change at any time.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box."
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