Inside Money: Alan Greenspan's rational holiday tips

Former Federal Reserve chief Alan Greenspan has been blasted for failing to acknowledge his role in inflating the bubble that burst into the world's worst ever financial crisis. Photo / Getty

All holidays end.

Mine was over when I started reading Alan Greenspan's The map and the territory 2.0 - the former Federal Reserve chief's analysis of why no-one saw the GFC coming and why it wasn't his fault.

A number of critics, including proper economists, blasted Greenspan for failing to acknowledge in the book his role in inflating the bubble that burst into history as the world's worst financial crisis ever.

Others, such as his friend and former US Treasury secretary, Larry Summers and a middle-of-the-road New York Times reviewer, were kinder to the old man.

But despite his no-apology approach, Greenspan does admit to learning a couple of important lessons from the GFC: banks and other financial intermediaries need to hold more capital, and; policy-makers need to take greater account of human craziness.

As a late-life convert to the burgeoning field of 'behavioural economics', the formal Fed chief concedes human foibles play a more important part in market movements than he previously believed.

Although Greenspan now says humans deviate from his rational economic models - albeit in a systematic (and maybe modelable) way. Nonetheless, he seems a little sad about it:

"Knowing what the human race could do if it were fully rational at least gives us the upper bounds of possible economic achievement," Greenspan says in the book.

However, for me the most interesting passage in the book (aside from where he quotes one of my former employers) is not a Greenspan product.

He cites comments from Peter Brown, co-chief executive of information-age hedge fund Renaissance Technologies, as a possible explanation for the measurable increase in market volatility over recent years.

"The rate at which market events occur is speeding up. There is no question that the world is speeding up in the sense that more is happening per unit of clock time than in the past," Brown tells Greenspan.

"This would explain why daily variance, which is a function of clock time not event time, is increasing; since more is happening in a day than in the past, the daily variance of prices that reflect changes in the world should be greater than in the past."

With so much more going on, I should have no trouble this year filling up the 15 WH Smith 150-page Reporter's Notebooks purchased from Whitcoulls in January at the bargain price of $1 per unit: this is a win for economic rationalism and a sure sign the holidays are over.