Book Title; The Map and The Territory
Author ; Alan Greenspan
Publisher ; Vintage International
Year ; 2013
Sampson Iroabuchi Onwuka
The former Fed Chairman Alan Greenspan argues in this book ‘The Map and The Territory’ that the 2008 experience was profound in its complex largely for exposing the impact of U.S markets on the rest of the world who’s forfeit of troubled Investment Banks such as Lehman Brothers and Bear Stearns left more mark to be desired and may forever live in infamy. But they saw it coming, that it seems to him that the attachment of these Investment Banks to the Federal Reserve, especially JP Morgan where he worked for a time, may have convinced them lending at a high risk, especially to individuals and corporations with checkered past, will not matter since these Banks were Too Big To Fail. The human factor is that the investment from savings which were thin from as at 2003, continued since the Housing boom in 2000s did not abate or show any signs of diminishing, that it was not justified for any reasons was clear enough but yet it continued to boom. It seems to him that the Banks may well be blamed for the problems of 2008 financial meltdown, but it was a meltdown that was long awaited going by human nature. In rear-view, the hustle over the US market came from elsewhere he argued, particularly Europe with their investment Banks penetrating the US housing market. Of course the implication is that the houses which are common sense real estate, or for other reasons suitable for converting money from shadow Banking or Moon Walking (hot money) to real money.
We would interject that the house prices simply became hot for nothing and many American based banks particularly JP Morgan, Goldman Sachs, Lehman Brothers, Bear Stearns, etc, had to reposition themselves in the market and the rest was a spike that signaled burst but was consciously ignored as pursuit of risk, which he believes was human nature. The role of International Banks in US is any factor – with or without respect to Gold – it is from the combined market forces of U.S stock market and the European, or what they call Archipelago, that majority of the short falls in forecast seem to play into the world markets in spite of the separation of the numbers.
By the 2006, the market were showing signs that it could not be contained, that the general expectations is that the failure of the government to erase some of the problems of the bubbles through tightening financial instrument such as the FED rate was a burst day scenario. Although the alleged strategic soft landing of the market did not expose to wage problem of fixed income, investment was largely in one major area.
From the point of view of the 2008 incident where all the fine points about Economic prediction and modern portfolio theory of financing which essentially proved its limits in forecasting burst in the U.S economy is played out, it is accurate to suggest that the book is 3 stars of 5 and possible an additional ½, reduced from 4 star for insufficiency of real life example such as Detroit, where the impact of COCO is felt with resolve on credit and savings as essentially out of the question for debts that fell well below a Threshold.
The Contingent Convertible (COCO) with sufficient respect to Debt to equity is styled to depart from debt and convert equity, whose official point should not be exceeded, or what Greenspan called a debt ‘threshold’ when reached should revert to actions on the Collateral property. This breach Debt stories usually force an action from all sides with respect to the collateral arrangement where for firms it converts debt into equity. This is pretty much the way most banks with enough foreign exposure operate, and it has a lot of problems associated with it. Why the COCO is not without force, we are concerned with why it made it to the book where it not to shine light on COCO consequences using a common place and real life example, for instance in Detroit or in larger framework such as Freddie Mac and Fannie Mae and HUD, where in another instance such as New York, Banks equally engage in extreme of insuring the loss of equity through Debt.
Greenspan argues that U.S economy consists of Index and graphs which allow independent Economic sources affiliated with the U.S Government to make financial decision and forecast the economic features of the government. He argued in his book that the process started as Ways and Means to end but by the 1930’s, they were at least two principle groups of measurements in US economy. One such is the measurement based on Cycles which he argued may go as far back as the period when the available of Agricultural Produce such as Wheat was depended on Weather conditions, and for that Weather experts –not as reliable as those in recent times – made forecast based on the year and the Weather conditions at a given time running mainly the course of a Season. With the advent of Rail Roads, the loading factor with respect to production replaced the old Horse and Carriage, the frightening speed of delivery and size almost insured business success and it in effect location along the business route applause for business credit.
New York for practical points of heavy investment in the 1920’s was excluded from what was happening in the rest of the country, and the Bank’s Weekly clearing or what they called Letters, reflected new concerns in the Country and hence aided investors comfortable with long or short term investment. By the end of the 1920’s, and beginning in 1919, the Federal Reserve began to keep an account of its graphs and fluctuations, and in 1920, the National Bureau of Economic Research was founded largely to entertain help the market and the country understand the varying degrees of their actions. Its First Director was a Wesley Mitchell who along with Arthur Burns compounded the book on Business Cycles.
For Alan Greenspan the role of Arthur Burns in US market and the working formation of the Federal Reserve is largely unknown saving for the removal of US currency from gold standard, based in part on Fischer Black’s citation but coincidental to formative inception of the role of the Feds in helping to stabilize the markets through M1 and M2 monetary injection to banks, particularly M2 (after Friedman and Schwartz) - but proclaims that the 40 years of his friendship with him, that he more than influenced his Chairmanship aptitude.
But then, the country did not expect the depression of the 1929, blamed to have lasted for such a long time for poor and lack of objective indexing for market forecast. The Index was measure of information or activity, represents the flow (momentum) during trading hours but then replaces the transaction receipt once the information or transaction is confirmed as Stock Index (Stochastic). But it was not itself totally dependent on Business Cycles, it affected Business Cycles on short waves and it shows the range and the graphs over a period of time and a day, reflect a trend which is now behaviors capable of mitigating the Seasonal expectation. The man responsible for putting together a larger framework of measuring the range of operational dynamics of the United States was a certain Simon Kuznet, though sponsored by NBER, worked for the most part independently. In fact that the understudied implications of Welfare in America was gifted new meaning from the supposed utility assumption of the state and city budgets and the Taxes was a different matter. The relevant association of Kuznet to GNP is derived from the comparative association of the remarkable Business Cycles along with the Government earnings and spending.
Greenspan argued that from all the final computations of the market which mostly took place in his reign and the fulfilling of a certain Graham Moore predictions of the role of computers in the modern banking and financing on one hand and marketing on the other hand, it is not without reason that Modern Portfolio theory took on a new meaning during the Internet and adequate information Age. He cited that a record of these graphs and movements reflect a terrible similarity. Yet no particular decade is suitable for any economic decade in the history of these United States; one whole year cannot explain the other, economic forecast is relative largely for what he believes to be human factor in decision making. In essence, the convenience of Maps and Territories for economic forecast of all types should only be useful to a certain degree, does not betray that it heralds some ultimate ends. In vein of 2008, it is not a misnomer, since the impact on rate of returns was European currency migration into US market. The sheer size of the money put on funk on the real estate, and there was no formal estimator saving the human nature.
Such objective opinion on the use of indicators usually cast the wrong aspersion on a system that is based on indexes which represents an attempt on Equilibrium from all corners and tiers of the World Market, and at times, those who promote arguments on the nature of Rational Economics, its Time series, its forecast and limits are usually facing a lot of dislocation or dissociation. For slippery books such as The Maps and The Territories, it will hardly be surprising that the schools of interest in money and psychology of advance economics and financial behaviors will be expected to take their cue on either side of the arguments. Rationality which in many ways than one is nothing else than forecast based on Business cycles and repeat seasons which is about 8% increase in sales yet differ by small fraction year on year. In all aspects of economic certainty, are expected to be opponents of Irrationality in market.
But this common sense approach is for argument sake settled along the Intermediate Path of two possibilities and it is either logical or economical to cite that during Greenspan’s Chairmanship several signs were already in effect hot comb, the CPI Index was high in Market Sensitivity, that manufacturing applause from value from product, took a low measure of market reaction. During Greenspan, Retail Market Index overtook the Index for Durable Goods. In the past, Chicago School and Mercantile exchange moved the interest facts of American Industries to the general public and at least up to 1970, University of Chicago placed enormous faith on Studies of US Industries which proved a lightning rod for Investment. But this Index with respect to Industries and to some degree manufacturing, Housing certificates and permits were important Index that had low probative market sensitivity. Rehearsed from behind, we may now interpret Greenspan’s irrationality as poverty of financial literacy within the operational risk of the market and the individual and respecting Alfred Marshal’s reduction of irrationality to lower class – usually the larger in number. But in kindly light of Greenspan’s Age of Turbulence, Welfare from Greenspan position, may supplant Alfred Marshall’s class complex. How well does Government spending resolve the most promising and telling problems faced by the most with the least? It is not the role of the Fed to measure the left and right of Government Spending, it their role to respond to significant Economic indicators, device plans through the tools available to them and from all signs and signals, it applause the case that the Feds is limited in its ability given the throes of Banks and Insurance Companies that day by day determine the future of the Markets. This is probably Rationalistic, since advances in Seasons and Cycles are only relatively estimable.
We begin by adding that a shift from Rational Economics and expectations of the Market is not saved by the spin off from the center which is called Irrationality, rather, a common place argument that Irrationality in market is as constant a factor as Greenspan argues, in indicating the left and right of the market, is arrived by behaviors on the graphs. Therefore the reasons for actions in human behaviors cannot be justified at anytime, and it is then Rationalistic to compare the supposing Irrational with as correlation to Rational. Rational Economies is not the center and represents no Sympletic and not true that the econometrics are Rationalistic side of the market, or is it the best or necessarily have the best BLUE for forecast at any time. Bank Stocks and SNL may only make up 20% of that crazy to expect world markets to behave according to plan
The presence of inexplicable economic growth or Wealth or profit for instance would not be expected to conform to any statistics or any season or any cycle in Business largely, for the fact that something like a growth in houses and real estate goes beyond the primal numbers to a degree that a sub-optimal of a long term reversal that is so well factored into the markets is considered self-repairing, similar to Walras’ General Equilibrium. The governing dynamics (consumption) of any market is subject to new forms of sensitive changes. It is a leading argument that housing recovery as an effective economic indicator is sensitive to economic recovery and household management. It also affirms the health of the market, any market, for the sake of expenses; Housing Recovery sensitive to the market as a practical measure of investors’ confidence and an effective economic indicator.
It does (does mean) not mean that efforts to abbreviate the depletion of US manufacturing Jobs was not factored into the dooms day scenario, but exactly how well the unemployment numbers correlated the size of turnovers and amount of Securitization in the massive and bullish 2000s would not have easily, provides a summary of the lapses in current economic indicators or forecast instrument which Greenspan merely highlighted.
It does not mean that the portfolio theory for instance suffers in quality; it mirrors the demands of a new form of economic expectations which he, Greenspan, labored in the book to put in clear and concise themes, with emphasis on human financial behaviors. Rational and Irrational Economies is not a study that can fit into any text book, it is a world increasingly polarized on the expectations attached to any market especially in context of two stimuli; one of which is the period of expansion and the period of the contraction. The latter is revised and advertised as a period in the history of money management which some continue from the standpoint of some benighted Austrian Money people, to be an inevitability from a general high period of robust and loose credit expansionary market policies. Of course, this diet is bad to the bone given the misleading inceptive in real time which both schools employ as a way to absorb any market this boom and burst.
Although we expected Greenspan to place more faith on the argument of Savings which seem at least Austrian, we find that it contradicts his whole existence wherefore he slovenly discusses the paradigm with aplomb and with Lorelei of positivist economist. Yet his seamless web of interactive discourses on the relevancy of savings manufactures a separate reason for the lack of formal capacity of the Maps and graphs associated with seasons to forecast an economic future.
It is not from the Greenspan’s ‘The Map and the Territory’ that we learn the great expectation involved with Country Wide and it’s dislocating relational to Bear Stearns. It is from Andrew Sorkin’s ‘Too Big to Fail’ (2009) that we have a rearview into the collapsing world of Country Wide. In fact Sorkin at some point began to point to Country Wide as the root of the problems with the 2008 kamikaze. The show which began somewhere in March 2008, concerned Bear Stearns but the connection between Investment Banks
Mr. Greenspan attempted to measure the success of his stay at Fed Chairman from the great demands of the unusual economic challenges of the 2000’s, citing an instance from one of his 2003 speeches where he adjudged the agility of US Real Estate market as experiencing an ‘irrational exuberance’. This speech is memorable for a market looking for a direction and explicating and its invocation it’s not a defense, rather, it is an oversight based on financials role play of the lender of the last resort; the Feds, and the problems of using familiar instruments without the rear-view of the consequences associated with them.
The cornerstone of his book may be reduced to this theme that irrational financial behaviors, especially human behaviors, constitute as much relevant forecast instrument as other business indicators, that emphasis on behavioral economies is not misplaced given the events of 2008 with limited run down of the variables. Real Price of Oil is a kind of shock Index of the spot Price and notional GDP price index (Log) and Feds Rate.
From this paragraph, it is clear that we are suggesting that the success and failure of ‘The Map and The Territory’ can objectively be measured by the use and abuse of economic forecast and indicators, or perhaps its interpretive meaning on the broad converse on world money. It is not to be said that there are alternatives which he pointed to but excess indulgence on degree of argument does equal the index of purely human form. It is not easy to quantity human behaviors but there is leniency towards a full and authorized pursuits of Herd-like behavior which based on instance capacity is often reduced to the opening gaps; beta from alphas, and in spite of the many few arguments on interests and inflation, the 4i quadratic is perhaps a Consumptive economic behaviors whose estimate is based on information, the flow. While the familiar territories and maps for forecast factors inventories and savings – particularly savings, the system here is not saved by rate of return or debt, maps for territories in comparative assessment to any market exist by reasons of the regression from a broad index of graphs. That is, the spread or the gaps between graphs...may or may not be leading the future all the time; it is unlikely that these forecast and monitors would not use savings and investment as tools for very significant tools.
Greenspan made light the argument that US markets experienced a shift of emphasis from savings to debt in the last decade. He is looking to emphasis savings along the lines of Debt, going at the rate of public consumption of durable goods, and such future estimate may require sacrifice. Hence Savings away from Investors is also a healthy practice in spite of the Chief source of returns for instance Interest Rate.
The author speaks of a fat tail for instance, that a fat tail in a graph usually reverts to the extent of losses. Subtracting expected losses from actual losses equals unexpected losses, but if any investor is looking to place the ‘beta factor’ role on his or her stock, it should not be done with respect to the stock in of itself, it should incorporate as much information as possible, including the legacy of business cycles and the human behavioral dynamics. Fat tails in ordinary circumstances of economic indexing, may equally result from the shift from production (production possibility) to cost is a transition strategy involving an industry and not necessarily manufacturing, but the length of the risk bearing tail beyond the excision of a risk averse investor mainly illustrates direction of the market after the shocks, and some of the shocks are irreversible. A fat tail is usually coincidental to the shift from left to right of the unemployment and inversely correlated inflation graph, best associated with Michael Philip as the Philip curve. The challenge to Philip’s curve by Michael Phelps does not diminish the attention it receives from of all economists since it is a logical explanation behind Labor as fixed index in any economy and there is a matter of wage to consider, and a shift from household to macroeconomics. It is an econometric tool.
A right hand side variable (all right hand side variables) is mainly vector driven, but may be compressed to a three months, which is a final indicating of what has already transpired in the Markets, both Stocks and Notes, as the Banks indicators arms the Feds with GDP estimate, or conditions the reactions from the Feds or the reaction from the Government. And the length of the tail usually point to consistent problems of unemployment and may point to short falls in aggregate demand resulting from the disequilibrium of fixed income and price. Talk about easy money or flow period, where there a foreseeable momentum, credit and securitization hitting a certain shock. The Kurtosis following a unsettling period usually require a definition, when for instance a variable such as Crude oil mitigates cost of production or deflationary Auto index, continues injection of money from the Banks may not be advised, yet withholding credit will force a negative adverse effect – usually psychological – on the market. Here the Feds will be expected to risk a line of Credit or react to the market through bond acquisition, a tool for negative truncation following the unusual agility (zig zag) of the market.
Here the run off is within two major variable, will not necessarily relate the Bayesian model for multivariate Bank Stocks dependent Fed Index, whereas Poisson manifold, dissimilar from Alpha-Beta Gaussian as used by Fischer Black and Myron Scholes, perhaps a Markov (preceding the Credit card) chain will do but on a specific year, the Monte Carlos computation, experience excitation may show better regression given the vectors aligned for 3 months and other deaths and decay will apply, possibly 15th or 22nd of the 30 day calendar.
The time or duration is important for both the VAR and AR, it is modeled after the previous execution and Time Series, which is not reality with due respect to Walk Process of the Bond as a definition of human financial behaviors, but measures the present from past record and hence the excitation, projection, earnings growth, GDP, in comparative performance to G-7 nations or peculiar others such as Britain and Germany the later Greenspan preferred over Japan for number of Banks and the role of American business tied up in Europe.
It is a shift that began its journey from the dumping of Gold as a standard for US currency 1971, a point that approaches the problems of CAPM from the participation of International currencies in U.S market. It amounts to commentary to add that CAPM safe-net is applause by the corresponding relational between currencies moving to US from International markets at 200 percent profits to nearly twice the amount when it moves from U.S into foreign markets. If the Feds still use a Cross Section Dispersion, of bank Stock, Bank level of return on CAPM regression and daily yields over the S&P 500 Index and estimate, usually on U.S based companies such as S&P 500 Index suing SNL for Bank Stocks, it prompts a 12 month calendar clearing a comparison with a 2 year Treasury Notes (Merrill Lynch). We push the daily calculation from a month to month basis, and calculate the deviation from previous records (standard deviation), and the rest is easy for instance the overnight lending or LIBOR would be reduced to a three months with respect to 12 Bank stock regression and 2 year notes. It is a variance of 12 months measured from daily monitor or estimator with specialization of each Bank for a given month.
The problems of the United States with regards to the Shadow banking is shocking of its system by the negative externality from Europe or from any regional economic environment such as Asia. Money laundry is one area the Fed Chairman did not torch on. The size of the wealth that is available in the US from foreign littoral impacts the local economy, that shadow banking alters the Internal Rate of return by the sheer size that a spike in Housing in disequilibrium to …the estimate of US Banks Stocks and Treasury Notes, usually eliminates the problems of unforeseen shocks to system is hence a Univariate model, Vector Auto Regression (VAR) that mitigates Internal Rates without the housing numbers. But if the housing numbers now experience more than normal excitation due to foreign or International Hot Money for short peculating the Residential numbers separately or independent of Feds Index. The 2000s economic boom in measured light was not a Boom, it was uneven and a robust attention on one key area of the market. 2008 was also a housing burst that major Investment Banks with more than one crop Portfolio.
Ordinarily, this safe-net explains why Japanese interest rate is usually lower than US and US than Europe, but from this arrangement and its relevance to overnight lending, we may fail to discover in the speeches and statements of Greenspan as Chairman in the 2000s that points to the money function of Euro to Dollars and the boom of Shadow Banking in US as A danger to Economic equilibrium, and an attack on the Internal Rate of Return reflecting the measure of general equilibrium, and/or disequilibrium which is not the same as Irrationality (unknown consumptive behaviors – usually a transition from Long Wave to Short Wave and its Variance which are the shocks to the market, or in advance money Fed Index over GDP) in spite of human financial behaviors which impacts (Graphs, Cycles) where the word Maps is here a macabre for these graphs and movement on the graphs and therefore Rational with due respect to the calculus and algebraic matrices of seasons and cycles and estimators, whereas the irrationality as a break-point, reflects movements on a graph reduced to a 1% by Greenspan – though not equal to 1 index. Or that the foreign financial machination was practically removing the estimator from the U.S Real Estate.
Shadow Banking in U.S is not just a European Banking disease; it is a very Asian in concept. If Greenspan is for instance blamed for short falls in the oversight, it is to be said that the source of his ‘irrational exuberance’ which Robert Shilling mentioned without inciting Europe, is clearly a divide between his oversight of the cause of the disequilibrium of US market and the emphasis on housing as an economic indicator, or that his faith in the trusted Fed’s tools and application did not and the large percentage of European banks involved in American Real Estate industry and the impact of Euro has not received adequate press, especially the roles of some its major Investment Banks which in turn acquired by European Corporations.
The Financial Crisis Inquiry Report of 2011 did mention the impact of Euro on US housing, which is a spent force in the new book by Greenspan, the boom in the 2000s was only a housing bubble.
Greenspan argues that nearly everyone in the market in 2006 was using the basic concepts of Modern Portfolio Theory, which Myron Sholes, Harry Markowitz, Fisher Black, Franco Modigliani, along the lines of Paul Samuelson made popular. But the theories had limited applications. The distribution of risk and losses is not governed by Micro or Macroeconomics, equilibrium or disequilibrium, it is a product of one’s willingness to accept that certain movements in the market cannot be justified and therefore caution is advised. But as Greenspan shares from his book, excitation from robust gains and large increases in numbers is not easy to manage hence the Institutions are also advised.