Jim Grant, New York's Most Eloquent Wall Street Bear

But this is no time to relax. A lot of bad stuff is going on in the economy, particularly in the banking system, that could allow Grant to have the last laugh. Before looking at this, though, one has to understand why Grant has believed this economic upswing to be a farce. His ruminations appear regularly in Grant's Interest Rate Observer, the influential newsletter he founded in 1983. Since a subscription to GIRO costs $725 a year, you'd be forgiven for not keeping track of his work (although much of his thinking can be found in his still-in-print book, The Trouble with Prosperity).

Grant's not anti-bubble because he has anything against capitalism. Quite the opposite. He thinks some of the worst features of the welfare state can be found in America's monetary system. There are two parts to this critique. First, that there's no way Greenspan?or any Fed chairman, for that matter?can set the right interest rate for the economy, meaning credit is always going to be too easy or too tight. Second, Grant's against any government guarantee, explicit or implicit, to underwrite the banking system, since this encourages foolish lending by bankers.

To many, such theories are crazy: they imply that the state should have no role whatsoever in running monetary policy and guarding the banking system. But Grant's has a knack of making such notions sound desirable. He's like a stock market version of A.J.P. Taylor, the Oxford historian whose deft prose and robust reasoning swung many to iconoclastic historical viewpoints. And it's that donnish persuasiveness that so annoys his foes. "Man, is this guy ever erudite. Incredibly wrong but incredibly erudite," hedge-fund manager Jim Cramer wrote about Grant last year. (Cramer's also a columnist for, and cofounder of, the TheStreet.com, where I work.)

Cramer's correct. Grant should be judged on whether he's right or wrong, not on whether he'd make a good professor. Often unhealthily, we're drawn to dubious maverick intellectuals who question "the system." They give voice to that inchoate feeling we have that all's not well with the world.

Grant has definitely led investors astray. Since 1996, when he spent 350 pages warning readers away from the market in The Trouble with Prosperity, the Dow's up almost 70 percent, and the NASDAQ has soared a stunning 224 percent. Much indicates that we are in a New Era. The proof of this is not just in the amazing technological innovations we see. This is the first time in nearly 100 years that most of the industrialized world has been capitalist and is engaged in something approaching free trade. Not wanting to sound like the Times' Thomas Friedman, I'd say the Mangia on Wall St. is a perfect example of this globalization. There, the while-u-wait grilled sea bass is prepared by Central American chefs and you check out with Polish cashiers.

It seems to work so well. Perhaps people like Grant need to get a grip and realize that freeing up markets is actually a lot more beneficial than even laissez-faire economists ever thought it would be. In fact, in this space in the spring I chided people for criticizing Fed Chairman Greenspan, the chief architect of this prosperity.

But anyone who has got within a mile of the boom knows it can't last. Everyone I know in finance or the media bemoans the chronic lack of even halfway-good employees. Plus, no one can understand why the inflation figures don't reflect the massive increases in key prices?like rents?we all experience. True, anecdotal evidence like this won't wash with the bull market's cheerleaders. But there are a lot of clear signs that the optimists choose to ignore.

For example, the banks are starting to have a tough time. Put simply, they have been reckless with depositors' money, validating Grant's view that government guarantees will fuel banks' bad behavior. In the past month, Chicago's Bank One and Charlotte's First Union, among the nation's largest banks, have reported billions of dollars in losses as they repair missteps, all committed in this boom. What the heck's going to happen to the rest of the banking sector when the economy slows? And bad loans?the cancer of the financial industry?have spiked up at several banks after lying at low levels for several years.

And, sure, inflation is low. But it was for most of the 1920s' boom that preceded the Great Depression. According to the Austrian school of economics, on which Grant draws heavily, prices would actually have fallen in the 20s had it not been for an overly lenient Fed. When prices did begin to rise too fast, the central bank closed the money floodgates, causing the 1929 crash and, of course, much more. We can't know for sure if Greenspan is going down the same path. If he is, and it's crunch time, a lot of people will be coming through Grant's doors. Not Mangia's, sadly.

Peter Eavis is banking reporter at TheStreet.com.