Vital warning ignored on Wall St

US FEDERAL Reserve chairman Alan Greenspan was credited eight years ago with losing President George Bush the election because his tight stance against inflation denied Americans the feelgood factor that comes from a booming economy.

The temptation is to say that Greenspan would be reluctant to go for the double but the remarks he made to Congress this week certainly give pause for thought.

Indeed, it is hard to imagine a more powerful attack on the policies of the current President Bush. These, he says, are producing strains on the public purse and creating a budget deficit that is beyond the means even of America, creating demands on the economy that 'we will almost surely be unable to meet'.

If nothing is done, and the budget deficit is allowed to spin out of control, the Fed will have to jack-up interest rates. But the American economy is hugely overborrowed and growth is far more fragile than the official figures suggest.

Thus, in Greenspan's view, the consequences for long-term growth of a rise in rates would be 'debilitating'. He added for good measure that growth in productivity would be nowhere near enough to bail out the economy - which is code for saying there are no soft options or easy answers.

If Bank of England Governor Mervyn King made a similar attack on this Government's policies, the roof would fall in - probably on him. But Greenspan, the man whose every word moved markets in the bull phase, was almost totally ignored by Wall Street, which focused only on his side comments that the economic outlook for the next few months continues to be good.

Greenspan's powers these days are limited: he can spell out the danger but he cannot make people listen because Wall Street is behaving like the man who jumped off the

skyscraper. All the way to the ground, he was heard to shout 'all right so far'.

Flawed rewards

THE saddest news of the week is that one of Britain's most gifted executives, Spirent chief executive Nick Brookes, has announced his retirement.

His is not a name that has been in the headlines often - not since the tech bubble at any rate - but there are very few who have worked with him or seen him in action that do not rate him very highly.

The fact Spirent is still here, and at last climbing out of the wreckage of the technology bust, is testament to his ability. Most people would have failed to save the company and his is a talent we can ill afford to lose.

For all his achievement, I doubt if Brookes will walk off with a wheelbarrow full of money, although what he has done has been so much tougher and more challenging than the achievements of many others who have been spectacularly better rewarded.

This highlights one of the fundamental wrongs with the huge rewards for performance in the current environment. The rewards go to those who happen to be riding the winners, not to those who may be the best jockeys but are on poor horses.

Most executives, particularly after they retire, are willing to admit that a major ingredient in their success was luck - they caught a company with the right product in the right market at the right time and successfully exploited the opportunity.

Had they been in different companies, facing tougher market conditions, it would have been very much harder to have made a mark.

There is nothing wrong with their getting a bonus for managing not to fall off. But the system would be all

the better if it also sought to recognise and reward the real but unsung performers in industry, who are so often working with unpromising companies where it is a major achievement not to go backwards.

Watchdog worry

GOOD to see that the Financial Services Authority has published an update of its views on polarisation but, in a way, this makes it all the more intriguing that there is still no definitive view from the regulator on the questions of the independence of broker research, and how it might be paid for.

For once, it appears the FSA really does not know what to do - as it virtually said in its business plan last month. This is because the logic of its earlier position, as outlined in its original paper, is that for research to be pure and genuinely independent, there needs to be a return to single capacity whereby the buy side is separated from the sell side and market-making.

That is too drastic for the regulator. Unfortunately though, any solution other than this is illogical.

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