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Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars

by Peter Hartcher

Black Inc, $165

After a near-record run as chairman of the US Federal Reserve,  Alan Greenspan stepped down on January 31, having served the legislated limit of 20 years as a board member.

His farewell  came in a haze of hagiography - he served nearly 18 years as chairman under four successive presidents and oversaw the greatest economic expansion in US history.

There are some, however, who will  toast  a collective good riddance, among them Australian journalist Peter Hartcher, who blames Greenspan for the bubble economy of 1994-2000 and the  collapse of the stock market.

Within a year, some US$7 trillion in paper wealth around the world vanished, US$3 trillion wiped off the nominal value of US stock markets alone, equivalent (though not comparable) to a third of the country's GDP.

Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars is essentially seven essays that collectively attempt to justify Hartcher's argument that the Fed chairman is solely to blame, 'by omission or commission', for the stock market bubble and its collapse.

Quite why Greenspan is to blame is never clearly stated, except perhaps that by not acting on his 1996 warning about the 'irrational exuberance' of US investors, he was  responsible for the party that followed.

But, as the money flowed into the government's coffers by way of revenues from stock transactions and profits, Greenspan sat down with then president, Bill Clinton, and gave him the best advice possible: pay off the deficit.

Hartcher, who watched the  bursting of the US bubble as Washington bureau chief for The Australian Financial Review, is a clever writer. His argument that 'Greenspan alone' was responsible for the market crash is a bold position,  one calculated to attract attention.

Published in Australia  last June by WW Norton, with limited distribution, the book  is due to go to hardback and general release soon.

The reader may, perhaps not unfairly, wonder how much Hartcher lost in the stock market crash.  It did not reduce millions to  poverty.  Indeed, the  blue-chip Dow Jones Industrial Average was back around 11,000  points this week, about 9 per cent below its  all-time peak of 11,750 set on January 14, 2000, from where it fell to a closing low of 7,286.27   on October 9, 2002. That's still a respectable  83 per cent gain  from 1994's 6,000 points  for the investor immune to the get-rich-quick contagion that fuels all bubbles.

The technology-heavy Nasdaq Composite Index, which bore the brunt of the dotcom boom, was in the first year of the crash down  60 per cent from its March 2000 peak of  about 4,000. It's climbed back to about 2,300.

Hartcher doesn't say much about Enron, which stole billions of dollars, or WorldCom, or the airlines. He doesn't criticise the buyer-beware attitude of investment houses pushing worthless stock. He doesn't explain where investors got  the idea that there was no downside risk. He  says nothing about the collective fundamental stupidity of the  US public.

Why blame Greenspan?

There's a sense of betrayal, but who has been betrayed is never made clear.

Bubble Man is available from www.blackincbooks.com and will be  released in hardcover by WW Norton in May



Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars