August 17, 1999

Fed chief Alan Greenspan has a way of making people nervous. With the utterance of a few words he can shift markets, making or breaking investors around the world. Years ago, tucked inside testimony that lasted hours, Greenspan said that he thought the stock markets were "irrationally exuberant." The markets foundered. Naysayers said the fall would last and that historical valuations would return. They were wrong, and the esteemed Fed Chairman stopped talking about stock levels. But the words have lingered, haunting every market decline. Knowing his every word would be analyzed, and that uttering the word "irrational" would have immediate impact, why did Greenspan proceed? According to the press, the Fed has a simple model that spits out where the market should be at any given time. The model made him do it. Question is, is the model any good?

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