Found via Santangel’s Review.
If you hung on the words of Ben Bernanke at the August 31, 2012 Jackson Hole Symposium, you may have listened to the wrong speaker – or perhaps chosen the wrong time – if you were looking for clues about whether the markets for risk assets are trading at more or less than what they are intrinsically worth.
Two years earlier, Jackson Hole, Wyoming, nestled in Wyoming’s Grand Tetons, was just another cozy mountain resort and conference center. The annual gathering of central bankers and academics had drifted from place to place until the promoters discovered that a crowd-drawing luminary like Paul Volcker could be induced to participate because of his recreational passion for, of all things… trout fishing. But in 2010, Jackson Hole was the location chosen by Fed Chairman Bernanke to famously promise, in so many words, that he would induce another rally in the markets in risk assets through a second round of quantitative easing. And in truth, QE2 was spectacularly successful if measured by the 28% advance in the S&P 500 (an index of 500 stocks weighted by market value, considered widely held, and therefore thought to be representative of the stock market as a whole).
However, the most prophetic and yet simultaneously reviled (or simply ignored) speech at Jackson Hole came five years earlier, on August 27, 2005. That was two years before the global financial system began the meltdown that is to some extent contained today only because of ongoing massive infusions of liquidity. The speaker during the otherwise upbeat celebration of Alan Greenspan’s larger-than-life career was a then obscure University of Chicago professor and former director of the IMF’s research department. Raghuram G. Rajan’s words were considered apostasy by many attendees, leaving Larry Summers livid. Rajan had dared pose the question, “Has Financial Development Made the World a Riskier Place?”
Fast-forward to August 31, 2012. On that day when Ben Bernanke delivered his Jackson Hole assurances to a world of investors hanging on his every word, another speaker from a different central bank delivered a message that nearly slipped through the cracks. Were it not for the keen eye of one reporter, Jason Zweig of the Wall Street Journal, about whose thoughtful work on behavioral economics I’ve written frequently, the speech may never have seen the light of day. Even though he did not arrive at the podium accompanied by drum rolls, Andy Haldane, Executive Director for financial stability at the Bank of England, is not a man who should be taken lightly. Unfortunately, even the intriguing title, “The Dog and the Frisbee,” was not bait enough to hold the attention of an audience for which a presentation on the application of complexity theory to regulatory oversight was simply … too complex.