Former Federal Reserve Chairman Alan Greenspan delivers the keynote address at the IMF Statistics Forum/Statistics for Policy Making on November 18, 2014 in Washington, DC. Greenspan died on Monday at the age of 100.
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Former Federal Reserve Chairman Alan Greenspan delivers the keynote address at the IMF Statistics Forum/Statistics for Policy Making on November 18, 2014 in Washington, DC. Greenspan died on Monday at the age of 100.
Paul J. via Getty Images Richards/AFP
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Alan Greenspan, who led the Federal Reserve for nearly two decades during some of the longest economic booms in US history, has died. Greenspan died Monday at his home in Washington. He was 100 years old.
Greenspan was a rare figure among central bankers, known for his economic leadership in the 1990s. At a time when it seemed every barbershop had a television tuned to the Stock Market Channel, ordinary Americans believed every word the Fed chairman said.
However, his reputation was tarnished by the global financial crisis that struck a decade later.
Greenspan liked to write speeches in the bathtub, but it was his listeners who sometimes felt underwater because of the unfamiliar dialect called “Fedspeak”.
Greenspan later admitted that he would deliberately hide his phrasing to avoid saying anything that would affect the financial markets.
An infamous exception came in 1996, when Greenspan suggested that stock prices might be ahead of themselves.
“How do we know that irrational exuberance has driven asset prices unduly high?” he asked during a speech at the American Enterprise Institute.
Warnings that bullish investors might not be rational sent a temporary shudder through global stock markets. But Greenspan’s own stock continued to rise.
Fed Chairman Alan Greenspan testifies before the Joint Economic Committee in Congress in Washington, DC, on June 17, 1999.
Tim Sloan/AFP via Getty Images
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Fed Chairman Alan Greenspan testifies before the Joint Economic Committee in Congress in Washington, DC, on June 17, 1999.
Tim Sloan/AFP via Getty Images
Greenspan tries his hand at jazz
He was married to NBC news anchor Andrea Mitchell, who announced his death in a statement, and the two made a somewhat unlikely power couple. Comedian Jay Leno once joked during a White House Correspondents’ Association dinner that Michelle was not married to then-First Lady Hillary Clinton, but to “the most powerful man in the world.”
Greenspan was a talented jazz musician who studied clarinet and saxophone at Juilliard. But it was economics that made him a rock star and a symbol of widely shared prosperity at the turn of the 20th century.
An expert on monetary policy, Greenspan led the central bank under four different presidents, starting in 1987.
Unemployment saw a decline throughout most of his tenure. Traditionally, central bankers respond to low unemployment by raising interest rates to prevent inflation. But Greenspan broke with that tradition and kept borrowing costs low.
Alan Blinder, a Princeton economist who served under Greenspan on the Fed’s governing board, recalled, “He was willing to watch and wait as the unemployment rate was getting lower and lower, and lower and lower, and we still had no inflation.”
Former Fed Chairman Alan Greenspan and his wife, television journalist Andrea Mitchell, attend a reception with Japanese Prime Minister Yoshihiko Noda at the Japanese Embassy in Washington, DC, on April 29, 2012.
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Former Fed Chairman Alan Greenspan and his wife, television journalist Andrea Mitchell, attend a reception with Japanese Prime Minister Yoshihiko Noda at the Japanese Embassy in Washington, DC, on April 29, 2012.
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Greenspan sees an economic boom
Greenspan’s gamble with low rates was successful and the economy continued to grow rapidly for a decade, although critics argue that his easy-money policies also helped inflate the dot-com bubble and fueled the subsequent subprime mortgage meltdown.
In addition to low interest rates, Greenspan took a light stance on regulation, refusing to use the Fed’s powers to crack down on risky loans. His libertarian philosophy was partly shaped by novelist Ayn Rand.
Greenspan was a member of Rand’s inner circle, contributing chapters to her book, Capitalism: The Unknown Ideal. When Greenspan joined the Ford administration as an economic advisor, Rand attended his swearing-in ceremony.
Rand’s biographer, Anne Heller, said, “Greenspan said that Ayn Rand laid for him the moral foundation under capitalism.”
Greenspan believed that bankers did not need strict regulation because their own interests would prevent them from taking undue risks. In 2008, when risky banking helped lead to the global financial crisis – two years after leaving the Fed – Greenspan casually admitted he was wrong.
Greenspan told a congressional committee investigating the financial meltdown, “I was surprised because I had been working for 40 years or more with ample evidence that it was working exceptionally well.”
Then-President Bill Clinton talks with then-Fed Chairman Greenspan during the receiving line at the White House in Washington, DC, on December 31, 1999.
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Then-President Bill Clinton talks with then-Fed Chairman Greenspan during the receiving line at the White House in Washington, DC, on December 31, 1999.
Tim Sloan/AFP via Getty Images
Greenspan has long advocated a light regulatory touch
However, the idea that bankers would sometimes take dangerous risks if allowed should come as no surprise to Greenspan.
Decades ago, they played a bit role in the savings and loan crisis, which was a kind of dress rehearsal for the 2008 financial crisis.
As a private economist in the 1980s, Greenspan provided a testimonial to the “experienced and expert” management at Lincoln Savings & Loan, in an effort to remove regulation of thrifts.
Lincoln subsequently collapsed, costing taxpayers billions in losses. And its owner, Charles Keating, went to prison for fraud.
Economist Vincent Reinhart said it required courage for Greenspan to admit, even if belatedly, that self-interest is not always enough to protect taxpayers and investors from the risky behavior of bankers.
“For Alan Greenspan to say, ‘Well, maybe the market doesn’t always get it right,’ that’s a reflection of his entire career, not just his tenure at the Fed,” Reinhart said.
Ultimately, Greenspan will be remembered as both a master of monetary policy and a reluctant regulator. His legacy is shaped by the boom that he promoted, and by the decline that he failed to prevent.
Contributed by John Ydesty To this report.
