Alan Greenspan

During his economics studies at New York University, Greenspan worked under Eugene Banks, a managing director at the Wall Street investment bank Brown Brothers Harriman, in the firm's equity research department.[21] From 1948 to 1953, Greenspan worked as an analyst at the National Industrial Conference Board (currently known as the Conference Board), a business- and industry-oriented think tank in New York City.[22] Before he was appointed chairman of the Federal Reserve, from 1955 to 1987, Greenspan was chairman and president of Townsend-Greenspan & Co., Inc., an economics consulting firm in New York City. His 32-year stint there was interrupted only from 1974 to 1977, when he served as chairman of the Council of Economic Advisers, under President Gerald Ford.[23]

In mid-1968, Greenspan agreed to serve as Richard Nixon's coordinator on domestic policy in the nomination campaign.[24] Greenspan has also served as a corporate director for Aluminum Company of America (Alcoa); Automatic Data Processing; Capital Cities/ABC, Inc.; General Foods; J.P. Morgan & Co.; Morgan Guaranty Trust Company; Mobil Corporation; and the Pittston Company.[25][26] He was a director of the Council on Foreign Relations foreign policy organization between 1982 and 1988.[27] He also served as a member of the influential Washington-based financial advisory body, the Group of Thirty in 1984.

Alan Greenspan in 2005

On June 2, 1987, President Ronald Reagan nominated Greenspan as a successor to Paul Volcker, as chairman of the Board of Governors of the Federal Reserve, and the Senate confirmed him on August 11, 1987.[29] Investor, author and commentator Jim Rogers has said that Greenspan lobbied to get this chairmanship.[30]

Two months after his confirmation, Greenspan said immediately following the 1987 stock market crash that the Fed "affirmed today its readiness to serve as a source of liquidity to support the economic and financial system".[31][32][33] Although the Federal Reserve followed its announcement with monetary policy actions, which became known as the Greenspan put, George H. W. Bush attributed his re-election loss to a sluggish response. Democratic president Bill Clinton reappointed Greenspan, and consulted him on economic matters. Greenspan lent support to Clinton's 1993 deficit reduction program.[34] Greenspan was fundamentally a monetarist and Austrian Economist in orientation on the economy,[35] and his monetary policy decisions largely followed standard Taylor rule prescriptions (see Taylor 1993 and 1999). Greenspan also played a key role in organizing the U.S. bailout of Mexico during the 1994–1995 Mexican peso crisis.[36]

In 2000, Greenspan raised interest rates several times; these actions were believed by many to have caused the bursting of the dot-com bubble. According to Nobel laureate Paul Krugman, however, "he didn't raise interest rates to curb the market's enthusiasm; he didn't even seek to impose margin requirements on stock market investors. Instead, he waited until the bubble burst, as it did in 2000, then tried to clean up the mess afterward".[37] E. Ray Canterbery agrees with Krugman's criticism.[38]

In January 2001, Greenspan, in support of President Bush's proposed tax decrease, stated that the federal surplus could accommodate a significant tax cut while paying down the national debt.[39]

In autumn 2001, as a decisive reaction to the September 11 attacks and various corporate scandals which undermined the economy, the Greenspan-led Federal Reserve initiated a series of interest cuts that brought down the federal funds rate to 1% in 2004. While presenting the Federal Reserve's Monetary Policy Report in July 2002, he said that "It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously", and suggested that financial markets need to be more regulated.[40] His critics, led by Steve Forbes, attributed the rapid rise in commodity prices and gold to Greenspan's loose monetary policy, which Forbes believed had caused excessive asset inflation and a weak dollar. By late 2004, the price of gold was higher than its 12-year moving average.

Greenspan advised senior members of the George W. Bush administration to depose Saddam Hussein for the sake of the oil markets.[41] He believed that even a moderate disruption to the flow of oil could translate into high oil prices,[42] which could lead to "chaos" in the global economy and bring the industrial world "to its knees".[43][44] He feared that Saddam could seize control of the Straits of Hormuz and restrict the transport of oil through them. In a 2007 interview, he said, "people do not realize in this country, for example, how tenuous our ties to international energy are. That is, we on a daily basis require continuous flow. If that flow is shut off, it causes catastrophic effects in the industrial world. And it's that which made him [Saddam] far more important to get out than bin Laden."[45]

On May 18, 2004, Greenspan was nominated by President George W. Bush to serve for an unprecedented fifth term as chairman of the Federal Reserve. He was previously appointed to the post by Presidents Reagan, George H. W. Bush, and Bill Clinton.

In a May 2005 speech, Greenspan stated: "Two years ago at this conference I argued that the growing array of derivatives and the related application of more-sophisticated methods for measuring and managing risks had been key factors underlying the remarkable resilience of the banking system, which had recently shrugged off severe shocks to the economy and the financial system. At the same time, I indicated some concerns about the risks associated with derivatives, including the risks posed by concentration in certain derivatives markets, notably the over-the-counter (OTC) markets for U.S. dollar interest rate options."[46]

Greenspan opposed tariffs against the People's Republic of China for its refusal to let the yuan rise,[47] suggesting instead that any American workers displaced by Chinese trade could be compensated through unemployment insurance and retraining programs.[48]

Greenspan's term as a member of the board ended on January 31, 2006, and Ben Bernanke was confirmed as his successor.

As chairman of the board, Greenspan did not give any broadcast interviews from 1987 through 2005.[49]

Immediately after leaving the Fed, Greenspan formed an economic consulting firm, Greenspan Associates LLC.[50] He also accepted an honorary (unpaid) position at HM Treasury in the United Kingdom.

On February 26, 2007, Greenspan forecast a possible recession in the United States before or in early 2008.[51] Stabilizing corporate profits are said to have influenced his comments. The following day, the Dow Jones Industrial Average decreased by 416 points, losing 3.3% of its value.[52]

In May 2007, Greenspan was hired as a special consultant by Pacific Investment Management Company (PIMCO) to participate in their quarterly economic forums and speak privately with the bond managers about Fed interest rate policy.[53]

In August 2007, Deutsche Bank announced that it would be retaining Greenspan as a senior advisor to its investment banking team and clients.[54]

In mid-January 2008, hedge fund Paulson & Co. hired Greenspan as an adviser. According to the terms of their agreement, he was not to advise any other hedge fund while working for Paulson. In 2007, Paulson had foreseen the collapse of the sub-prime housing market and hired Goldman Sachs to package their sub-prime holdings into derivatives and sell them. Some economic commentators blamed this collapse on Greenspan's policies while at the Fed.[55][56]

On April 30, 2009, Greenspan offered a defense of the H-1B visa program, telling a U.S. Senate subcommittee that the visa quota is "far too small to meet the need" and saying that it protects U.S. workers from global competition, creating a "privileged elite". Testifying on immigration reform before the Subcommittee on Immigration, Border Security and Citizenship, he said more skilled immigration was needed "as the economy copes with the forthcoming retirement wave of skilled baby boomers".[57]

Greenspan wrote a memoir titled The Age of Turbulence: Adventures in a New World, published September 17, 2007.[58] Greenspan says that he wrote the book in longhand mostly while soaking in the bathtub, a habit he regularly employs since injuring his back in 1971.[59] Greenspan discusses in his book, among other things, his history in government and economics, capitalism and other economic systems, current issues in the global economy, and future issues that face the global economy. In the book, Greenspan criticizes President George W. Bush, Vice President Dick Cheney, and the Republican-controlled Congress for abandoning the Republican Party's principles on spending and deficits. Greenspan's criticisms of President Bush include his refusal to veto spending bills, sending the country into increasingly deep deficits, and for "putting political imperatives ahead of sound economic policies".[60] Greenspan writes, "They swapped principle for power. They ended up with neither. They deserved to lose [the 2006 election]".[61][62] He praised Bill Clinton above all the other presidents for whom he'd worked for his "consistent, disciplined focus on long-term economic growth".[63] Although he respected what he saw as Richard Nixon's immense intelligence, Greenspan found him to be "sadly paranoid, misanthropic and cynical". He said of Gerald Ford that he "was as close to normal as you get in a president, but he was never elected".[62] Regarding future U.S. economic policy, Greenspan recommends improving the U.S. primary and secondary education systems. He asserts this would narrow the inequality between the minority of high-income earners and most workers whose wages have not grown in proportion with globalization and the nation's GDP growth.[64]

In the wake of the subprime mortgage and credit crisis in 2007, Greenspan stated that there was a bubble in the U.S. housing market, warning in 2007 of "large double digit declines" in home values "larger than most people expect".[76] Greenspan also noted, however, "I really didn't get it until very late in 2005 and 2006."[77]

Greenspan stated that the housing bubble was "fundamentally engendered by the decline in real long-term interest rates",[78] though he also claims that long-term interest rates are beyond the control of central banks because "the market value of global long-term securities is approaching $100 trillion" and thus these and other asset markets are large enough that they "now swamp the resources of central banks".[79]

After the September 11, 2001 attacks, the Federal Open Market Committee voted to reduce the federal funds rate from 3.5% to 3.0%.[80] Then, after the accounting scandals of 2002, the Fed dropped the federal funds rate from then current 1.25% to 1.00%.[81] Greenspan stated that this drop in rates would have the effect of leading to a surge in home sales and refinancing, adding that "Besides sustaining the demand for new construction, mortgage markets have also been a powerful stabilizing force over the past two years of economic distress by facilitating the extraction of some of the equity that homeowners have built up over the years".[81]

According to some, however, Greenspan's policies of adjusting interest rates to historic lows contributed to a housing bubble in the United States.[82] The Federal Reserve acknowledged the connection between lower interest rates, higher home values, and the increased liquidity the higher home values bring to the overall economy: "Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission".[83]

In a February 23, 2004, speech,[84] Greenspan suggested that more homeowners should consider taking out adjustable-rate mortgages (ARMs) where the interest rate adjusts itself to the current interest in the market.[85] The Fed's own funds rate was at a then all-time-low of 1%. A few months after his recommendation, Greenspan began raising interest rates, in a series of rate hikes that would bring the funds rate to 5.25% about two years later.[86] A triggering factor in the 2007 subprime mortgage financial crisis is believed to be the many subprime ARMs that reset at much higher interest rates than what the borrower paid during the first few years of the mortgage.

In 2008, Greenspan expressed great frustration that the February 23 speech was used to criticize him on ARMs and the subprime mortgage crisis, and stated that he had made countervailing comments eight days after it that praised traditional fixed-rate mortgages.[87] In that speech, Greenspan had suggested that lenders should offer to home purchasers a greater variety of "mortgage product alternatives" other than traditional fixed-rate mortgages.[84] Greenspan also praised the rise of the subprime mortgage industry and its tools for assessing credit-worthiness:

Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country ... With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. ... Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.[88]

The subprime mortgage industry collapsed in March 2007, with many of the largest lenders filing for bankruptcy protection in the face of spiraling foreclosure rates. For these reasons, Greenspan has been criticized for his role in the rise of the housing bubble and the subsequent problems in the mortgage industry,[89][90] as well as "engineering" the housing bubble itself.

In 2004 Businessweek magazine analysts argued: "It was the Federal Reserve-engineered decline in rates that inflated the housing bubble ... the most troublesome aspect of the price runup is that many recent buyers are squeezing into houses that they can barely afford by taking advantage of the lower rates available from adjustable-rate mortgages. That leaves them fully exposed to rising rates.[91]

In September 2008 Joseph Stiglitz stated that Greenspan "didn't really believe in regulation; when the excesses of the financial system were noted, (he and others) called for self-regulation—an oxymoron".[92] Greenspan, according to The New York Times, says he himself is blameless.[93] On April 6, 2005, Greenspan called for a substantial increase in the regulation of Fannie Mae and Freddie Mac: "Appearing before the Senate Banking Committee, the Fed chairman, Alan Greenspan, said the enormous portfolios of the companies—nearly a quarter of the home-mortgage market—posed significant risks to the nation's financial system should either company face significant problems."[94] Despite this, Greenspan still claims to be a firm believer in free markets, although in his 2007 biography he wrote, "History has not dealt kindly with the aftermath of protracted periods of low risk premiums" as seen before the credit crisis of 2008.

In 2009 Robert Reich wrote that "Greenspan's worst move was to contribute to the giant housing bubble and the worst worldwide crash since the Great Depression. In 2004 he lowered interest rates to 1%, enabling banks to borrow money for free, adjusted for inflation. Naturally, the banks wanted to borrow as much as they possibly could, then lend it out, earning nice profits. The situation screamed for government oversight of lending institutions, lest the banks lend to unfit borrowers. He refused, trusting the market to weed out bad credit risks. It did not."[95]

In congressional testimony on October 23, 2008, Greenspan finally conceded error on regulation. The New York Times wrote, "a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending ... Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken". Although many Republican lawmakers tried to blame the housing bubble on Fannie Mae and Freddie Mac, Greenspan placed far more blame on Wall Street for bundling subprime mortgages into securities.[96]

In March 2008, Greenspan wrote an article for the Financial Times' Economists' Forum in which he said that the 2008-financial crisis in the United States is likely to be judged as the most wrenching since the end of World War II. In it he argued: "We will never be able to anticipate all discontinuities in financial markets." He concluded: "It is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition." The article attracted a number of critical responses from forum contributors, who, finding causation between Greenspan's policies and the discontinuities in financial markets that followed, criticized Greenspan mainly for what many believed to be his unbalanced and immovable ideological suppositions about global capitalism and free competitive markets. Notable critics included J. Bradford DeLong, Paul Krugman, Alice Rivlin, Michael Hudson, and Willem Buiter.[97]

Greenspan responded to his critics in a follow-up article in which he defended his ideology as applied to his conceptual and policy framework, which, among other things, prohibited him from exerting real pressure against the burgeoning housing bubble or, in his words, "leaning against the wind". Greenspan argued, "My view of the range of dispersion of outcomes has been shaken, but not my judgment that free competitive markets are by far the unrivaled way to organize economies". He concluded: "We have tried regulation ranging from heavy to central planning. None meaningfully worked. Do we wish to retest the evidence?"[98] Financial Times associate editor and chief economics commentator Martin Wolf defended Greenspan primarily as a scapegoat for the market turmoil. Several notable contributors in defense of Greenspan included Stephen S. Roach, Allan Meltzer, and Robert Brusca.[99]

However, an October 15, 2008, article in The Washington Post analyzing the origins of the economic crisis claims that Greenspan vehemently opposed any regulation of derivatives, and actively sought to undermine the office of the Commodity Futures Trading Commission when the commission sought to initiate regulation of derivatives. Meanwhile, Greenspan recommended improving mark-to-market regulations to avoid having derivatives or other complex assets marked to a distressed or illiquid market during times of material adverse conditions seen during the late 2000s credit crisis.[100]

Greenspan was not alone in his opposition to derivatives regulation. In a 1999 government report that was a key driver in the passage of the Commodity Futures Modernization Act of 2000—legislation that clarified that most over-the-counter derivatives were outside the regulatory authority of any government agency—Greenspan was joined by Treasury Secretary Lawrence Summers, Securities and Exchange Commission Chairman Arthur Levitt, and Commodity Futures Trading Commission Chairman William Ranier in concluding that "under many circumstances, the trading of financial derivatives by eligible swap participants should be excluded from the CEA" (Commodity Exchange Act). Other government agencies also supported that view.[101]

In Congressional testimony on October 23, 2008, Greenspan acknowledged that he was "partially" wrong in opposing regulation and stated "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity—myself especially—are in a state of shocked disbelief."[102][103] Referring to his free-market ideology, Greenspan said: "I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact." When Representative Henry Waxman (D-CA) pressed him to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said. "Absolutely, precisely", Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."[104] Greenspan admitted fault[105] in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected.

Matt Taibbi described the Greenspan put and its bad consequences saying: "every time the banks blew up a speculative bubble, they could go back to the Fed and borrow money at zero or one or two percent, and then start the game all over", thereby making it "almost impossible" for the banks to lose money.[106] He also called Greenspan a "classic con man" who, through political savvy, "flattered and bullshitted his way up the Matterhorn of American power and ... jacked himself off to the attention of Wall Street for 20 consecutive years".[107]

In the documentary film Inside Job, Greenspan is cited as one of the persons responsible for the financial crisis of 2007–2008. He is also named in Time magazine as one of the "25 People to Blame for the Financial Crisis".[108]

Greenspan describes himself as a "lifelong libertarian Republican".[62]

In March 2005, in reaction to Greenspan's support of President Bush's plan to partially privatize Social Security, then-Democratic Senate Minority Leader Harry Reid attacked Greenspan as "one of the biggest political hacks we have in Washington"[5][6] and criticized him for supporting Bush's 2001 tax cut plan.[7] Then-Democratic House Minority Leader Nancy Pelosi added that there were serious questions about the Fed's independence as a result of Greenspan's public statements.[109] Greenspan also received criticism from Democratic Congressman Barney Frank and others for supporting Bush's Social Security plans favoring private accounts.[110][111][112] Greenspan had said Bush's model has "the seeds of developing full funding by its very nature. As I've said before, I've always supported moves to full funding in the context of a private account".[113]

Others, like Republican Senator Mitch McConnell, disagreed that Greenspan was too deferential to Bush, stating that Greenspan "has been an independent player at the Fed for a long time under both parties and made an enormous positive contribution".[114]

Economist Paul Krugman wrote that Greenspan was a "three-card maestro" with a "lack of sincerity" who, "by repeatedly shilling for whatever the Bush administration wants, has betrayed the trust placed in the Fed chairman".[115]

Republican Senator Jim Bunning, who opposed Greenspan's fifth reconfirmation, charged that Greenspan should comment only on monetary policy, not fiscal policy.[116][117] Greenspan had used his position as Fed chairman to comment upon fiscal policy as early as 1993, however, when he supported President Clinton's deficit reduction plan, which included tax increases and budget cuts.[118]

In an October 2011 lecture addressing the Occupy movement,[119] Noam Chomsky characterized portions of Greenspan's February 1997 testimony to the U.S. Senate as an example of the self-serving attitudes of the so-called 1%. In that testimony, Greenspan had stated that growing worker insecurity is a significant factor keeping inflation and inflation expectation low, thereby promoting long-term investment.[120]

Honorary Degrees

Location	Date	School	Degree	Gave Commencement Address
Indiana	21 May 1995	University of Notre Dame	Doctor of Laws (LL.D)[136]
Pennsylvania	1998	University of Pennsylvania	Doctor of Laws (LL.D)[137]
Massachusetts	10 June 1999	Harvard University	Doctor of Laws (LL.D)[138]	Yes[139]
Connecticut	1999	Yale University	Doctor of Humane Letters (DHL)[140]
Scotland	2005	University of Edinburgh	Doctorate[141]
New York	14 December 2005	New York University	Doctor of Commercial Science[142]

• Greenspan, Alan (2007). The Age of Turbulence: Adventures in a New World. New York: Penguin Press. ISBN 978-1-59420-131-8. OCLC 122973403.
• Mallaby, Sebastian (2016). The Man Who Knew: The Life and Times of Alan Greenspan. New York: Penguin Press. ISBN 9781594204845.
• Martin, Justin (2000). Greenspan: The Man behind Money. Basic Books. ISBN 978-0738202754. OCLC 45188865.
• Woodward, Bob (2000). Maestro: Greenspan's Fed and the American Boom. New York: Simon & Schuster. ISBN 0-7432-0412-3.