I met Alan Greenspan last weekend at an event in Washington D.C.Â thrown by my alma mater, the University of Illinois. Ben Bradlee received the Illinois Prize for LifetimeÂ Achievement in JournalismÂ at theÂ Newseum (a truly amazing space), and the place was hopping withÂ journalistic legends, including Bob Woodward, Jim Lehrer, and Bob Schieffer.
I had gone up to a former CNN colleague to say hello and found myself standing next to the former Fed chairman and his wife, NBC’s Andrea Mitchell. Unfortunately, I can only report that he drinks diet Coke, because Mr. Greenspan moved away rather quicklyÂ after the introduction.
I suspect he was in no mood forÂ questions after hisÂ four-hour grilling the day before in front of the HouseÂ Committee on Government Oversight and Reform. Greenspan admitted his free-market,Â anti-regulationÂ ideology had ultimately been a mistake.
As he wrote last March, andÂ quotedÂ to the lawmakers: “Those of us who looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
Greenspan, like many on Wall Street, was trippedÂ up byÂ over-confidence (or possibly irrational exuberance?) in the U.S. housing market. SeeÂ this Yahoo!Finance column for the view of a Wall Street insider.Â Â
What I found most interesting about Mr. Greenspan’s testimony was his explanation of how difficultÂ it is to make accurate predictions about the future course of the economy and the markets.Â At another event that weekend IÂ spoke with two Wall StreetÂ professionals — one who suggested I should have nothing in stocks at all (my retirement portfolio is about 40% in stocks) and another who suggested I should have 100% in stocks and be buying on margin.
More proof that the old adages — figure out your risk tolerance and time frame, and create anÂ allocation that reflectsÂ them — still apply.Â