#18
Who?
- American economist
- Chairman of the Federal Reserve from 1987 to 2006
Career and Personality
- Came to the Federal Reserve Board from a consulting career
- Subdued in public appearances, but media and followers considered him a rockstar
- Criticized by Democratic leaders of Congress for increasing the deficit via his support for Social Security privatization and tax cuts
- Called 'inflation hawk' because of his inflation policy, wherein critics claimed he was focusing on controlling prices rather than achieving full employment
- Blamed in part for both the 2000 dot-com bubble and 2008 financial crisis
- Known for being adept at gaining consensus among Fed board members on policy issues and for serving during one of the most severe economic crises of the late 20th century, the stock market crash of 1987
Views and Contributions
- Greenspan was found by the Financial Crisis Inquiry Commission to have contributed to the 2008 financial crisis for his failure to curtail subprime mortgage loans during the housing bubble
- In a 2004 speech, he suggested that more homeowners should consider taking out adjustable-rate mortgages (ARMs) where the interest rate adjusts itself to prevailing market interest rates
- He argued that the housing bubble was not a product of short term low-interest rates but rather a worldwide phenomenon caused by the progressive decline in long-term interest rates
- When interest rates rose, it reset people's mortgages to higher payments causing even more distress for homeowners, exacerbating the impact of the crisis
- He advocated for slashing interest rates after the 1987 stock market crash to prevent the economy from sinking into a depression
- After the 9-11 World Trade Center attack, Greenspan led the FOMC to reduce the Fed funds rate from 3.5% to 3% and subsequently to 1%; despite this, the economy remained sluggish
- The easy-money policies of the Fed during his tenure such as the Greenspan put have been suggested to be a leading cause of the dot-com bubble
- He used the phrase "irrational exuberance" to imply a warning that the stock market might be overvalued
Objectivism
- Greenspan met novelist and philosopher Ayn Rand in the early 1950s, who nicknamed him "the undertaker" because of his penchant for dark clothing and reserved demeanor
- He was initially a logical positivist before he converted to Rand's philosophy of Objectivism by her associate Nathaniel Branden
- During the 1950s and 1960ss Greenspan was a proponent of Objectivism and wrote essays and articles for Rand's 1966 book Capitalism: The Unknown Ideal
The 'Greenspan Put'
- Trading strategy popular during the 1990s and 2000s
- Greenspan attempted to help the U.S. economy by actively using the federal funds rate as a lever for change
- This encouraged excessive risk-taking leading to put options being lucrative
- The 'Put' referred to a reliance on a stock market put option strategy that would aid investors in mitigating their losses, thus profiting from deflating market bubbles
- It suggested that informed investors could expect the Fed to act predictably and make put option derivative strategies profitable during crises
Fun Facts
- Greenspan’s interest in facts and figures began at age 5 when he took a liking to recite baseball batting averages of players, which helped him figure out calculations in his head
- Studied music at Juilliard and toured the country playing tenor sax and clarinet with The Henry Jerome Orchestra
- Served under four presidents, starting with Ronald Reagan and ending with George W. Bush
- Describes himself as a "lifelong libertarian Republican"
Timeline of events
- Stepped down as Federal Reserve chairman in 2006
- Global financial markets began to unravel
- Few financial institutions collapsed while governments experienced massive bailouts
- The worst economic downturn in three-quarters of a century ensued
- Lots of people blamed Greenspan for some or all of this
- He claimed to have found a flaw, so to speak, in how the world works, in a Congressional hearing in October 2008
Awards and Honours
- U.S. Senator John Heinz Award, 1976 (Greatest Public Service by an Appointed Official)
- Fellow of the American Statistical Association, 1989
- Commander of the Legion of Honour in France, 2000
- Order of the British Empire (Civil), 2002
- Dwight D. Eisenhower Medal for Leadership and Service, 2004
- First recipient of the Harry S. Truman Medal for Economic Policy, 2005
- Presidential Medal of Freedom, 2005 (Highest US civilian award)
- Thomas Jefferson Foundation Medal in Citizen Leadership, 2007
Quotes
"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."
"I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant."
"Government regulation cannot substitute for individual integrity."
"Unless you are willing to compromise, society cannot live together."
"I have found no greater satisfaction than achieving success through honest dealing and strict adherence to the view that, for you to gain, those you deal with should gain as well."
"Anything that we can do to raise personal savings is very much in the interest of this country."
"The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake."
"I'm not denying that monopolies are terrible things, but I am denying that it is readily easy to resolve them through legislation of that nature."
"The very nature of finance is that it cannot be profitable unless it is significantly leveraged... and as long as there is debt, there can be failure and contagion."
"History has not dealt kindly with the aftermath of protracted periods of low-risk premiums."
"Revolutions are something you see only in retrospect."
Notes
Harsh criticism of his tenure at Fed Reserve:
Some of Greenspan’s harshest critics point to his earlier association with famed philosopher and novelist Ayn Rand. The essay he wrote for Rand, which also appeared in her book attacked the Federal Reserve and supported the gold standard to back the money.
Former Congressman Ron Paul of Texas once confronted Greenspan about his turn away from Rand’s ideas of free-market economics and the gold standard, but Greenspan stood firm with his change of views on economics.
Although Greenspan saw the nation go through tremendous economic growth through the 1980s and 1990s, his last five years as Fed chairman witnessed a 13% plunge in the S&P 500.
Greenspan featured as one of the "25 People to Blame for the Financial Crisis" Time magazine article, which also suggested that Greenspan's advocation of low-interest rates combined with the unregulated financial system may have sparked the mortgage and banking crisis.
