Banking Date: 1999-09-18 12:14:21

Subject:

Greenspan Finally Gives a Speech on Y2K. He Says It's No Big Deal. Keep Your Money in the Bank. No Problem.

Link:

http://www.bog.frb.fed.us/BoardDocs/speeches/1999/19990...

Comment:

For three years, I have waited for Alan Greenspan to deliver a speech on y2k. Now, with 14 weeks to go, he has.

The Federal Reserve Board has used two other members to be front men on y2k: Edward Kelley, Jr. and Roger Fergusson. Mr. Greenspan has stayed remarkably silent on the issue. If Congressmen have asked him about it, he has replied, but that has been the limit of his public pronouncements. Yet in one Q&A exchange with Senators, he admitted that he was a programmer in the 1960's and was proud back then to save the two digits.

He has said that banking needs 100% compliance; 99% will not do. He is not alone in this opinion.

( There is no compliant money center bank yet. )

But y2k is not a threat, he says. Public panic may be. Some people might -- just might -- come down to bank and try to withdraw currency in December, "just in time," so to speak.

Consumers should prepare for the Century Date Change as they would for any long weekend. Those people who do cash out a significant part of their deposits only increase the risk that they will become victims of crime or fraud.

When Alan Greenspan starts sounding like one of those inserts in your monthly bank statement, you had better think about what your personal contingency plan is.

My comments are in brackets.

For a parallel but somewhat more cynical analysis than mine of his speech, click here.

* * * * * * * * * * * *

Remarks by Chairman Alan Greenspan Before the President's Council on Year 2000 Conversion, Financial Sector Group, Year 2000 Summit, Washington, D.C. September 17, 1999

Good morning, everyone. It's an honor to speak today to such an esteemed group. All of you are experts on the implications of the Century Date Change for our sector of the economy, and I suspect I will not have much to add beyond what already is well known. We face an exceptionally complex problem that has required and will continue to require the commitment of significant amounts of resources to fix. The good news is that evidence is becoming more persuasive that our electronic infrastructure will be ready for the Century Date Change. The public's understanding of the degree of our Y2K readiness also has grown, and fears of widespread disruptions around the CDC appear to be waning, though we are not as yet home free.

[The electronic infrastructure in banking is international. It requires phones. It also requires compliant data. If the phone lines work, but the data are not compliant, then today's yet-to-be compliant computer systems of the vast majority of U.S. banks will be made noncompliant again, assuming that they get compliant in the next 14 weeks. The problem is not just hardware and software. The problem is also the accuracy of data.]

There is nothing exactly like the Century Date Change in our historical annals from which we can infer its potential consequences. Nonetheless, it is the beginning of wisdom in thinking about the Y2K problem to recognize that failures and breakdowns in mechanical and electronic systems are a normal part of our everyday life. Recall the most recent example of how an electric power failure shut down the Chicago Board of Trade. Thus, as a standard for monitoring developments, it is simply unrealistic to expect our advanced technology to function any better on January 1, 2000, than it has on any other day of the year. Automated teller machines are a prime example of this. On any given day, 1 to 2 percent of the nation's ATMs are out of service for some reason. Although the banking system and ATM providers are about as prepared for Y2K as they can be, we cannot realistically expect perfection over the New Year's holiday any more than at similar periods in years past.

[This is a strange topic. Is he expecting the same old glitches? If so, why spend precious time on this? Does he think that the U.S. media will blow things out of proportion, creating a panic because of a few random glitches? The media have been sonambulent and skeptical on y2k so far. Why expect anything different, if the same percentage of glitches occurs?]

Moreover, while systems may fail as they have in the past, these failures never have resulted in broader and persistent--that is, systemic--breakdowns in our economy. Notwithstanding, it is at least conceivable that, as a consequence of our current dependence on computers, some Y2K-related failures could have noticeable effects on the economy. But as a result of vast effort and an estimated $50 billion of expense by the private sector, enough of our critical infrastructure has been judged Y2K-compliant to view the probability of any systemic breakdown as negligible, even granting the uncertainties associated with our interconnections with less-prepared foreign countries.

[He used the S-word: systemic. Good for him. He says that previous failures have never resulted in systemic failures. True; but in the previous paragraph, he said: "There is nothing exactly like the Century Date Change in our historical annals from which we can infer its potential consequences." Never before has a single programming error been introduced into 50,000 mainframe computers, 300 million microcomputers, plus a few billion embedded chips. Oh, yes: data, too. He mentions an expenditure of $50 billion by the U.S. private sector. What has this expenditure accomplished? There is no compliant industry in the U.S. There is no compliant money center bank that I am aware of. Then there are all those computers in foreign countries. There are computers in small businesses, suppliers' businesses, and so forth. This is an interdependent world. That's what "systemic" means.]

In the event of breakdowns short of systemic, history teaches us that businesses are remarkably adaptive, whether the adversities were the failure of AT&T's frame relay network, defective routers in the MCI-WorldCom data transmission network, or the clogged arteries of the Union Pacific railroad. In our market-based economy, economic incentives ensure that resources quickly move to their most-productive activities: In a crisis situation, whether systemic or short of that, companies expeditiously redeploy their labor and capital resources to facilitate the restoration of their key operations. Corporate management is wholly aware that a slow response to a breakdown can bring revenue losses in the short run and an erosion of their customer base in the long run. Simply put, in our competitive economic environment, the ability to recover quickly from a serious technical problem can literally be a matter of survival for some firms.

[I see. The free market will solve it. It has yet to solve it, but it will solve it. This man sounds as though he is still a follower of Ayn Rand. I ask that nagging free market question: "At what price?" There is this consideration, as well: the economist distinguishes between long-term solutions and short-run solutions. Short-run solutions can be very expensive to purchase, assuming they exist, which with 14 weeks to go seems highly doubtful. This is what economists call inelasticity of supply. Cost curves can go almost straight up in short-run situations. If the world has not solved this problem in three years, or five, then what should we expect solutions to cost next year?]

Fortunately, our country has the skilled, well-educated workforce that is a precondition for such quick action. While ingenious solutions can sometimes originate from the executive suite, more often than not they grow out of the ability of engineers, technicians, and workers on the factory floor to improvise a temporary fix for a critical problem. Depth of experience and the ability of our workers to think "outside of the box" have prevented many a problem from turning into a disaster. Think back to the team of NASA engineers that developed a critical air filtration system for the Apollo 13 astronauts using only the limited materials available on that crippled spacecraft. While certainly less dramatic, similar problem solving is occurring every day in our economy, fostered by workers who can rise to a challenge and a market system that rewards extraordinary efforts. Thus, while no one knows exactly what will happen on January 1--the CDC is a truly idiosyncratic event--we do have a good idea of how our society will respond if problems develop.

["Fortunately, our country has the skilled, well-educated workforce that is a precondition for such quick action." By golly, it's that old standby, "good, old fashioned American ingenuity." I hadn't heard it in over a year. Too bad there are 170 or 180 or whatever nations that don't have a large supply of this wonderful product. Then he treats us to "outside the box." Mr. Greenspan has a great future ahead of him giving management seminars.]

This morning we will hear many progress reports on the Y2K readiness of the financial industry and other key sectors. As we listen, it is most important to keep in perspective just how far we have come in our Y2K preparations. Three years ago, only the largest and arguably the most forward-looking of organizations had mobilized for the Century Date Change. Today, many firms and government agencies have completed their testing, and those institutions that were late off the block are working very diligently to be ready by the end of the year. While it is easy to obsess about the few institutions in our society that may not be ready, let us not lose sight of the fact that the overwhelming majority of us are not only prepared but have contingency plans to deal with breakdowns. Much has been learned over the past few years about how to disinfect our computer systems from the Y2K bug and how to isolate any problems that may occur. This large and growing knowledge base will serve us well as we approach the millennium and for years thereafter.

[Boola, boola.]

While I have become increasingly persuaded that the technical breakdowns that might occur as a consequence of the CDC are readily containable, the response of businesses and households to unwarranted fears of serious disruptions does give me pause. It is the economic effects of their endeavoring to adjust to the CDC in the next few months that I see as replacing technical concerns as our major challenge.

[Ah, ha! We are the problem. Not the code. Us.]

I am not saying that we would have been better off if the existence of the Y2K problem had never been publicized. In that event, the remedial actions that have been expended over the past two years would surely have fallen short. Although the desirability of publicizing the existence of a pending significant technical breakdown was never in question--and never should have been--it always raised the potential hazard of an outsized, if only partly informed, disruptive reaction by the public. Given the potentially broad range of uncertain outcomes at the CDC, the cost of advance preventative preparations in most cases is probably correctly perceived by businesses and households to be low, or at least acceptable.

[Poor dumb clucks that we are, something under 1% of us have worried enough about broken code to start preparing. We have not been comforted by lawyers' boilerplate statements that turn "y2-ready" announcements into legal spaghetti -- rather like the code, now that I think of it. We have worried about broken code in the computers of all those other nations that buy and sell with us -- you know, the international division of labor.]

Thus, with their own remediation efforts either complete or nearing completion, many large businesses are currently evaluating the readiness of their suppliers and the local infrastructure on which they depend. Based on such assessments, these companies are deciding whether, for example, to hold inventory levels above their tight, just-in-time programs as a precaution against Y2K-related disruptions. Because businesses are effectively buying insurance against an uncertainty, the less uncertainty, the smaller the perceived insurance need. Thus, accurate, credible, and timely information on the general state of readiness will be essential to reducing uncertainties in the months ahead. Businesses then can make more-informed decisions as to the type and magnitude of the precautions they need to take.

[What we need is more information. Gee, this sounds like a y2k PR piece from 1997 -- mid-1998 at the latest. Information will somehow save us -- the kind of information a team of lawyers will supply. But what if the information is bad news? What if it says "we're fried"? I keep thinking of a man on death row, scheduled for execution 14 weeks hence. He keeps waiting to hear if the governor will pardon him. No news so far. It's a shame that he was convicted for shooting the governor's wife. But he's still confident about his chances. He is ON TRACK to liberty.]

If only a small percentage of businesses choose to add to their inventories as a hedge, the effect on production will be insignificant. However, should a large number of companies want to hold even a few extra days of inventories, the necessary, albeit temporary, increase in production ( or imports ) to accommodate such stock building could be quite large. Bottlenecks could develop, and market pressure could ensue. Thus, the more we share information, the more informed our decisions and, hence, the smaller the need for precautionary hedging.

[So, nobody should stockpile inventories beyond a few days' worth. Otherwise, bottlenecks will develop. We must all trust in the whole world's just-in-time systems, with their untested, self-reported 97.8% y2k-ready computers, as qualified by lawyers' boilerplate.]

While the evidence of precautionary inventory hedging to date is mixed, in the financial sphere, borrowers and lenders are clearly taking steps to build liquid assets and reduce their reliance on credit markets around the end of the year. This is reflected in a noticeable rise in deposit and commercial paper rates for funding that would be outstanding over year's end. Many corporate treasurers have moved forward their debt offerings to avoid any chance of a dearth of credit availability in the fourth quarter or difficulties funding short-term liabilities. The Century Date Change Special Liquidity Facility of the discount window that was approved by the Federal Reserve Board in July and the contingency actions of the Federal Open Market Committee announced by the Federal Reserve Bank of New York on September 8 should help to ensure an ample supply of liquidity and relieve funding pressures.

[Translated from central bankers' Esperanto: "The liquidity crunch has begun. We're going to crank out those greenbacks!"]

The potentially most important piece in the Y2K puzzle for the rest of the year is the uncertain response of the American consumer as the year-end approaches. A small number of households, driven by fear of the unknown, tell pollsters that they are planning to build large stockpiles of food, water, fuel, and cash as the millennium approaches. Most, however, profess much more limited plans.

[A small nuumber of Americans -- about 40% of the U.S. population, as I recall -- say that they will start hoarding goods later this year. The U.S. distribution system could handle . . . what? Maybe a 3% shift in large, well-supplied industries. It would be a lot lower in the power generator, solar panel industries.]

Nonetheless, we at the Federal Reserve must be prepared for all contingencies and have made especial plans for currency availability in the remote possibility of heavy withdrawals from banks. I trust that such withdrawals will be modest since, as I have said before, the safest thing for consumers to do with their money around year-end is to leave it where it is. Consumers should prepare for the Century Date Change as they would for any long weekend. Those people who do cash out a significant part of their deposits only increase the risk that they will become victims of crime or fraud. Prudent consumers nonetheless should always have up-to-date copies of their financial records just in case of a "normal" computer glitch.

[What is the contingency for an international gridlock of large banks when they cannot pay their obligations at the end of the day? What happens to $80 trillion -- Mr. Greenspan's estimate -- of unregulated derivatives contracts? What happens to the world's stock markets, bond markets, and futures markets when a dozen or more money center banks shut down and cannot pay? What is the contingency plan for such a shutdown? Where is it posted on the Web? Who has seen it? What president, prime minister, or other senior political official has seen it? Can you give us an outline of what the Federal Reserve Ststem plans to do when two or three money center banks in each of, say, six countries announce that they must delay settling their accounts for a week or two? They will all call you. What will you tell them? To sit tight until good, old-fashioned American ingenuity, combined with the free market, comes up with a solution?]

In summary, no one really knows what will happen when the century rolls over. The Century Date Change, to repeat, is a unique event, and the complexity of the problem suggests that something is likely to slip through the cracks. But as I mentioned earlier, the probability of a cascading of computer failures in mission-critical systems is now negligible, given the testing that has been done, the backup plans that are in place, and the Fortunately, our country has the skilled, well-educated workforce that is a precondition for such quick action. Fortunately, our country has the skilled, well-educated workforce that is a precondition for such quick action. Moreover, the evidence of an increasingly compliant computer infrastructure appears to have assuaged at least some of the public's earlier Y2K concerns, according to several recent surveys. And the year-end interest rate premiums, which rose throughout the first half of this year, appear to have receded a bit since early September.

[So, no one knows what will happen. Then how can the world's managers create reliable contingency plans to deal with y2k? "Fortunately, our country has the skilled, well-educated workforce that is a precondition for such quick action." How will they get paid if the banks shut down?]

Nonetheless, we have not yet reached the period of extra heavy focus by the media on the CDC. It is too compelling a story for audiences that thrive on countdowns to the unknown. As attention heightens and rumors inevitably mushroom, it is important that what is known and what is not known be clearly articulated by those of us in both public and private leadership positions in Y2K management. In the final analysis, facts are the only antidote for rumors.

[What we know is this: the experts, including Greenspan, say they don't know what will happen. This is supposed to comfort us yokels?]

We at the Federal Reserve are optimistic that computer problems associated with the Century Date Change and the response to the CDC will not be a major event for our nation. This is a testament to the extraordinary efforts of thousands of far-sighted technicians and business planners who, confronted with an intangible and abstract problem, have been able to convince businesses and governments to marshal vast resources for remedial actions. This has been a truly impressive feat. If we avoid fear-induced, significant economic responses in the months ahead, the Century Date Change will hopefully replicate the saga of "the dog that did not bark."

[What about Japan? Germany? Italy? Latin America? India? China? Saudi Arabia? South Korea? What about all those noncompliant small and medium-size businesses that employ most Americans? What about all those local governments, which Mr. Koskinen keeps telling us are not ready? And, not to put too fine a point to it, what about Chase Manhattan Bank, Citicorp, and Bank of America? They have 14 weeks to go, and almost no time for final testing. What about that lost year of testing? Wasn't it necessary? Was the whole thing about how that year's cushion would protect us just a bunch of PR flak to keep us calm in 1998?]

-- Andy (2000EOD@prodigy.net), September 20, 1999

Answers

Thanks, Andy. Good grief, Gary North linked our parsnips to his commentary, saying "For a parallel but somewhat more cynical analysis than mine of his speech, click here."

AAAHHHH BBWWAAHAHAHAHAHAHAHAHAHA !!!

If that isn't the Ultimate Doomer Crown Of Thorns -- to be deemed by Gary North to be more cynical than him re Y2K -- oh delicious irony. His sense of humor must be flagging these days.

Thought he'd Link our parsnips as a stand-alone with a wink and tongue-in-cheek. Sigh. Although it *really* IS what Greedspin is saying ...

-- Ashton & Leska in Cascadia (allaha@earthlink.net), September 20, 1999.

Guys,

I think your link is a hot-link on his site.

I wrote to Drudge but got no reply - you are too controversial I think!

-- Andy (2000EOD@prodigy.net), September 20, 1999.

ROFLOAOTWP !! Too controversial for Drudge !! Oh dear, gonna go to bed and sleep this one off.

-- Ashton & Leska in Cascadia (allaha@earthlink.net), September 20, 1999.

A&L ROFLOAOTWP???

Andy, could you, or Greespan please condense the whole thing into a one liner.

-- gilda (jess@listbot.com), September 20, 1999.

I'll give that a shot Gilda. First off Alan Greenspan doesn't own the Federal Reserve, he is an employee of the Rockerfellers and the Rothschilds. Kind of a P.R. man. His job is to maximize profits for them no matter what the cost to the American public, or the peopn slaves of any other nation. This job is made expotentially easier by the fact that 95% of the public not knowing the Federal Reserve is a privately owned corporation, not a Government agency, and that our government mortgaged all of the U.S. (Alloidial title) to the Fed as collateral against the national debt. Every square inch of real estate, every home, every car.

Now the time has come to foreclose. The only hope that local banks will have to stay in business in the face of bank runs and massive defaults is to BORROW massive amounts of cash from the Fed. utilizing all their loans and assetts as collateral. Problem is there isn't enough cash in existence to cover the shortfall so all that will be acomplished by this move is that ownership of all privately held banks will be transferred to the owners of the Fed along with all assetts. The Rockefellers and the Rothschilds will in one fell swoop have taken physical posession of the entire country, to go along with the gold reserves they have been looting for the last 50 years, and we will have made the last step into our transition to slavery.

Alan is doing A BRILLIANT job. You might think of him as an interpreter between the owners of the Fed and the herd. You realize that herds and worthless eaters do not speak the same language as Gods. They whisper in his ear and he says "Don't worry, be happy." but what they really said we "We've got you now my pretty."

-- Nikoli Krushev (doomsday@y2000.com), September 20, 1999.

sorry about all the typos, my enthusiasm often exceeds my skill.

-- Nikoli Krushev (doomsday@y2000.com), September 20, 1999.

OO ee OO, ee OO, ee OO, OO ee OO ...

-- monkeys on the way (poppies@my.pretty), September 20, 1999.

From: Y2K, ` la Carte by Dancr near Monterey, California

Here's a hot link to Gary North's analysis: Greenspan Finally Gives a Speech on Y2K. He Says It's No Big Deal. Keep Your Money in the Bank. No Problem.

He took out the hotlink to Ashton & Leska's translation! :/

-- Dancr (addy.available@my.webpage), September 20, 1999.

Sorry! My mistake. He moved it to the end.

-- Dancr (addy.available@my.webpage), September 20, 1999.

Gilda, translation of ROFLOAOTWP from A & L: Rolling On Floor Laughing Our A$$e$ Off Till We Pee. Descriptive, isn't it? :-)

BTW, A & L, please report to the FRL 8 thread ASAP. (Yes, of course it's in code!) :-)

-- Gayla (privacy@please.com), September 20, 1999.