I met Alan Greenspan last weekend at an event in Washington D.C. thrown by my alma mater, the University of Illinois. Ben Bradlee received the Illinois Prize for Lifetime Achievement in Journalism at the Newseum (a truly amazing space), and the place was hopping with 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 quickly after the introduction.
I suspect he was in no mood for questions after his four-hour grilling the day before in front of the House Committee on Government Oversight and Reform. Greenspan admitted his free-market, anti-regulation ideology had ultimately been a mistake.
As he wrote last March, and quoted 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 tripped up by over-confidence (or possibly irrational exuberance?) in the U.S. housing market. See this Yahoo!Finance column for the view of a Wall Street insider.
What I found most interesting about Mr. Greenspan’s testimony was his explanation of how difficult it is to make accurate predictions about the future course of the economy and the markets. At another event that weekend I spoke with two Wall Street 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 an allocation that reflects them — still apply.