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Alan Greenspan

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Alan Greenspan
13th Chairman of the Board of Governors of the Federal Reserve
In office
August 11, 1987 – January 31, 2006
Preceded byPaul Volcker
Succeeded byBen Bernanke
Personal details
Born (1926-03-06) March 6, 1926 (age 98)
New York City
NationalityAmerican
SpouseAndrea Mitchell
ProfessionEconomist

Alan Greenspan (born March 6, 1926 in New York City) is an American economist and was Chairman of the Board of Governors of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor making speeches and providing consulting for firms through his company, Greenspan Associates LLC.

First appointed Fed chairman by President Ronald Reagan in August 1987, he was reappointed at successive four-year intervals until retiring after a record-setting tenure on January 31, 2006, at which time he relinquished the chairmanship to Ben Bernanke. Greenspan was lauded for his handling of the Black Monday stock market crash that occurred very shortly after he first became chairman, as well as for his stewardship of the Internet-driven, "dot-com" economic boom of the 1990s. However, this expansion culminated in a stock market bubble burst in March 2000 followed by a recession beginning in late 2000 and continuing through 2002.

From 2001 until his retirement, he was increasingly criticized for some statements seen as overstepping the Fed's traditional purview of monetary policy, and viewed by others as overly supportive of the policies of President George W. Bush, as well as for policies seen as leading to a housing bubble. Greenspan was nonetheless still generally considered during that time to be the leading authority on American domestic economic and monetary policy, and his active influence continues to this day.[1][2][3]

Biography

Greenspan was born in 1926 to a Hungarian Jewish family [4] in the Washington Heights area of New York City. He studied clarinet at The Juilliard School from 1943 to 1944.[5] He is an accomplished saxophone player who has played with Stan Getz.[6] While in college, he played in a jazz band. He then attended New York University (NYU), and received a B.S. in Economics (summa cum laude) in 1948, and an M.A in Economics in 1950. Greenspan went on to Columbia University, intending to pursue advanced economic studies, but subsequently dropped out. Much later, in 1977, NYU also awarded him a Ph.D. in Economics. He did not complete a dissertation,[citation needed] normally required for that degree. On December 14, 2005, he was awarded an honorary Doctor of Commercial Science from NYU, his fourth degree from that institution.

Starting in 1950, Greenspan began a 20-year association with famed novelist and philosopher Ayn Rand. He wrote for Rand’s newsletters and authored several essays in her book Capitalism: The Unknown Ideal.[7]

From 1948 to 1953, Greenspan worked as an economic analyst at The Conference Board, a business and industry oriented think-tank in New York City. From 1955 to 1987, Greenspan was Chairman and President of Townsend-Greenspan & Co., Inc., an economic consulting firm in New York City, a 33-year stint interrupted only from 1974 to 1977 by his service as Chairman of the Council of Economic Advisers under President Gerald Ford. In the summer of 1968, Greenspan agreed to serve Richard Nixon as his coordinator on domestic policy in the nomination campaign.[8] Greenspan also has served as a corporate director for Aluminum Company of America (Alcoa); Automatic Data Processing, Inc.; Capital Cities/ABC, Inc.; General Foods, Inc.; J.P. Morgan & Co., Inc.; Morgan Guaranty Trust Company of New York; Mobil Corporation; and The Pittston Company.[9]

Alan Greenspan has been married twice. His first marriage was to Joan Mitchell in 1952. The marriage ended in divorce one year later in 1953. In 1984, Greenspan began dating journalist Andrea Mitchell. Greenspan at the time was 58, and the also once divorced Mitchell was 20 years his junior at the age of 38. In 1997, they married.

Greenspan and Objectivism

Greenspan was initially a logical positivist, but was converted to Objectivism by Ayn Rand. During the 1950s and '60s Greenspan was a proponent of her philosophy, writing articles for Objectivist newsletters and contributing several essays for Rand's 1966 book Capitalism: the Unknown Ideal including an essay supporting the gold standard.[10] During the 1950s, Greenspan was one of the members of Ayn Rand's inner circle, the Ayn Rand Collective, who read Atlas Shrugged while it was being written. Although Greenspan continues to advocate laissez-faire capitalism,[11] some Objectivists find his support for a gold standard somewhat ironic given the Federal Reserve's role in America's fiat money system and endogenous inflation. He has come under criticism by Harry Binswanger,[12] who believes his actions while at work for the Federal Reserve and his publicly expressed opinions on other issues show abandonment of Objectivist and free market principles. However, when questioned in relation to this, he has said that in a democratic society individuals have to make compromises with each other over conflicting ideas of how money should be handled. He said he himself had to make such compromises, because he actually believes that "we did extremely well" without a central bank and with a gold standard.[13]

When Greenspan was sworn in as chairman of the Council of Economic Advisers in 1974, Ayn Rand attended the ceremony. Greenspan attended Rand's funeral in 1982.

Chairman of the Federal Reserve

On June 2, 1987 President Reagan nominated Dr. 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. After the nomination, bond markets experienced their biggest one-day drop in 5 years. Just two months after his confirmation he was faced with his first crisis -- the 1987 stock market crash. His terse statement, "the Fed stands ready to provide all necessary liquidity" [citation needed] is seen as having been effective in controlling the damage from that crash. (Others believe that his statement "...that the dollar would be devalued..." just days before was a primary factor in the crash.) Another famous example of the effect of his closely parsed comments was his December 5 1996 remark about "irrational exuberance and unduly escalating stock prices" that led Japanese stocks to fall 3.2%.[14]

Earlier image of Alan Greenspan

Greenspan was famous for his ability to give technical and confusing speeches. U.S. News & World Report reported that, "Few can confuse Wall Street as thoroughly as Federal Reserve Board Chairman Alan Greenspan can."[15] Greenspan was sometimes so hard to understand that the Motley Fool radio show included a game called "What Did the Fed Chief Say?", where contestants were challenged to interpret snippets of Greenspan's speeches.[16] Greenspan mocked his own speaking style in 1988 when he said, "I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I said." To a central banker, being unclear is often an advantage since it grants more flexibility: if he is too predictable, markets are more willing to speculate in his future actions, and any move he makes will already be potentially priced into the economy. During his period at the Fed, Greenspan never publicly commented what algorithms or inflation and unemployment targets the Fed used in setting the interest rate. Despite this, over the years he built credibility in the financial markets that he was willing to fight inflation. The flexibility permitted him to affect the economy by, say, lowering interest rates in order to fight a recession while his credibility made it possible to do this without shocking the bond market.

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 Ronald Reagan, George H. W. Bush and Bill Clinton. Greenspan was awarded the Presidential Medal of Freedom, the highest civilian award in the United States, by President George W. Bush in November 2005.[17] His honorary titles include Knight Commander of the British Empire, bestowed in 2002 and Commander of the Légion d'honneur (Legion of Honor).

Greenspan's term as a member of the Board ended on January 31, 2006, and Ben Bernanke was confirmed as his successor. Bernanke is a former chairman of the U.S. President's Council of Economic Advisers, and his appointment is seen in part as a move to effect a smooth transition. He does disagree with Greenspan on the question of "inflation targeting," a practice in which the Fed makes public a projected inflation rate, effecting a greater transparency in likely Fed moves to raise or lower short-term interest rates. Inflation targeting arguably reduces certain forms of economic volatility.[18] Bernanke is for a targeted minimum level of inflation, Greenspan against.

Greenspan and the housing bubble

Greenspan admitted that the housing bubble was “fundamentally engendered by the decline in real long-term interest rates”;[19] he also admitted that there was a bubble in the US housing market[20] and said in the wake of the subprime mortgage and credit crisis in 2007, “I really didn't get it until very late in 2005 and 2006.”[21] In 2007, Greenspan warned of "large double digit declines" in home values "larger than most people expect."[20]

Following the attacks on September 11, 2001, the Federal Open Market Committee voted to reduce the federal funds rate from 3.5% to 3.0%.[22] Then, after the accounting scandals of 2002, the Fed dropped the federal funds rate from the current 1.25% to 1.00%.[23] Greenspan acknowledged that this drop in rates would have the effect of leading to a surge in home sales and refinancing.

"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."[24]

However, Greenspan's policies of adjusting interest rates to historic lows contributed to a housing bubble in the US. The Federal Reserve acknowledges 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." —Board of Governors of the Federal Reserve System, September 2005.[25]

Furthermore, in a speech on February 23, 2004, Greenspan suggested that lenders should offer to home purchasers a greater variety of "mortgage product alternatives" other than traditional fixed-rate mortgages.[26] Greenspan also praised the rise of the subprime mortgage industry and the tools with which it uses to assess credit-worthiness in an April 2005 speech:

"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."[27]

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,[28][29] as well as "engineering" the housing bubble itself:

"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." —BusinessWeek, July 19, 2004, Is A Housing Bubble About To Burst?[30]

Charges of politicization

Greenspan describes himself as a "lifelong libertarian Republican[31]". On March 3, 2005, Democratic Senate Minority Leader Harry Reid attacked Greenspan as "one of the biggest political hacks we have here in Washington"[32] and criticized him for supporting Bush's 2001 tax cut plan. Greenspan was also received criticized by Democratic Congressman Barney Frank and others for his support of Bush's plan to phase out Social Security in favor of private accounts.[33][34][35] 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."[36]

Economist Paul Krugman, a frequent Greenspan critic, wrote in the New York Times 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...."[37]

Charges that Greenspan was veering beyond the Fed's purview of monetary policy into fiscal and political matters traditionally left to lawmakers became more prevalent, coming for example from sources such as Republican Senator Jim Bunning who voted against reconfirming him.[38] Then-Democratic House Minority Leader Nancy Pelosi stated in 2005 there were serious questions about the Fed's independence as a result of Greenspan's public statements.[39] But others like Republican Senator Mitch McConnell disagreed, stating that Greenspan "has been an independent player at the Fed for a long time under both parties and made an enormous positive contribution."[40] Furthermore, Greenspan had used his position as Fed Chairman to comment upon fiscal policy as early as 1993, when he supported President Clinton's deficit reduction plan, which included tax hikes and budget cuts (Bob Woodward's book Maestro, page 110).

Later career

Greenspan now works as a private advisor making speeches and providing consulting for firms through his company, Greenspan Associates LLC. On May 16th 2007, Greenspan was hired as a special consultant by PIMCO and he will participate in Pimco’s quarterly economic forums and speak privately with the bond manager about Fed interest rate policy.[41] He has written his memoir,[42] titled The Age of Turbulence.

Directly following his retirement as Fed chairman, Greenspan accepted an honorary (unpaid) position at HM Treasury in the United Kingdom.

On February 26, 2007, Greenspan forecast a possible recession in the U.S. before or in early 2008.[43] Stabilizing corporate profits are said to have influenced his comments. The following day, the Dow Jones Industrial Average closed at 12,216.24 dropping by 416 points and losing 3.3% of its value, the worst one day loss since September 17, 2001, when the Dow Jones lost 684 points (7.1%) after reopening in the wake of the 9/11 terrorist attacks. This drop is not thought to be entirely due to Greenspan's recent comment, whose opinion is nonetheless substantially influential.

On August 13, 2007, Deutsche Bank announced that it would be retaining Dr. Greenspan as a Senior Advisor to its investment banking team and clients. [44]

In The Age of Turbulence: Adventures in a New World, published September 17, 2007, Greenspan rails against 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.[45] Greenspan writes, "They swapped principle for power. They ended up with neither. They deserved to lose” the 2006 election.[46] Of all the presidents with whom he worked, he praises Bill Clinton above all others, saying that Clinton maintained “a consistent, disciplined focus on long-term economic growth.” Although he respected what he saw as Richard Nixon's immense intelligence, Greenspan found him to be the most profane, bigoted, and disturbed president to work with. He found Gerald Ford to be the most ethical.[47] Greenspan also offers his opinion that the Iraq War is about oil, writing, "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil". [48] Greenspan has since clarified these remarks in an interview. In the interview, Greenspan stated, "I was not saying that that's the administration's motive. I'm just saying that if somebody asked me, 'Are we fortunate in taking out Saddam?' I would say it was essential". [49]

See also

References

  • Bob Woodward (2001). Maestro: Alan Greenspan and the American Boom. Simon & Schuster. ISBN 0-7432-0412-3.
  • Jerome Tuccille (2002). Alan Shrugged: Alan Greenspan, the World's Most Powerful Banker. Wiley. ISBN 0-471-39906-X.
  • The Economist (October 15-21, 2005 issue) page 29, "After Alan"
  • http://www.db.com/presse/en/content/press_releases_2007_3606.htm
  1. ^ http://www.denverpost.com/business/ci_4021400
  2. ^ http://www.canada.com/nationalpost/financialpost/story.html?id=1b18ccd6-a9d8-4167-bf2c-d3710c4c8c5f&k=6899
  3. ^ http://biz.yahoo.com/ap/060519/greenspan_speech.html?.v=2
  4. ^ The original family name may have been Grünspan.
  5. ^ Aversa, Jeannine. "Greenspan opens up in new book", Akron Beacon Journal, September 11, 2007. Accessed September 16, 2007. "A lover of classical and jazz music, Greenspan once worked as a jazz musician and studied the clarinet at Juilliard."
  6. ^ Hagenbaugh, Barbara. "The Alan Greenspan Project rocks on", USA Today, July 16, 2003. Accessed September 16, 2007. "At the time, the band members did not know that early in life, the Fed chairman was a musician. He learned how to play the clarinet as a kid and played with famous saxophonist Stan Getz when they were both teenagers."
  7. ^ http://usliberals.about.com/od/peopleinthenews/a/Greenspan1.htm
  8. ^ Stephen Ambrose: Nixon: The Triumph of a Politician, 1962-1972 (1989) ISBN 0-671-52837-8
  9. ^ Bloomberg News (2000-02-01). "U.S. Senate Panel Votes for 4th Term for Fed Chairman Greenspan". Deseret News. {{cite news}}: Check date values in: |date= (help); Italic or bold markup not allowed in: |publisher= (help) See also verbatim list reproduced at Wharton School of Business, "Alan Greenspan, Chairman of the Board of Governors of Federal Reserve, Receives Dean’s Medal at Wharton School MBA Commencement".
  10. ^ Greenspan, Alan. "Gold and Economic Freedom". Retrieved 2007-07-25.
  11. ^ "Alan Greenspan speech: full text". 2005-11-12. Retrieved 2007-07-25.
  12. ^ "Greenspan on "Infectious Greed"". Retrieved 2007-07-25.
  13. ^ Alan Greenspan on FOX Business Network 10/15/07 [1]
  14. ^ http://www.pbs.org/newshour/bb/economy/december96/greenspan_12-6.html
  15. ^ Paul J. Lim. "So What Did Greenspan Say?".
  16. ^ "Game: What Did the Fed Chief Say?" (HTTP). NPR Program Guide: Fun & Games. National Public Radio. January 27, 2006.
  17. ^ 2005 Presidential Medal of Freedom recipients
  18. ^ http://www.businessweek.com/magazine/content/05_45/b3958607.htm
  19. ^ Greenspan, Alan (16 September 2007). "A global outlook". Financial Times. {{cite news}}: Check date values in: |date= (help)
  20. ^ a b "Greenspan alert on US house prices". Financial Times. 17 September 2007. {{cite news}}: Check date values in: |date= (help)
  21. ^ "Greenspan says didn't see subprime storm brewing". Reuters. 13 September 2007. {{cite news}}: Check date values in: |date= (help)
  22. ^ http://www.federalreserve.gov/boarddocs/hh/2002/February/FullReport.txt
  23. ^ http://www.house.gov/jec/hearings/11-13-02.pdf
  24. ^ http://www.house.gov/jec/hearings/11-13-02.pdf
  25. ^ http://www.federalreserve.gov/pubs/ifdp/2005/841/ifdp841.pdf
  26. ^ http://www.federalreserve.gov/boarddocs/speeches/2004/20040223/default.htm
  27. ^ "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. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. 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." Alan Greenspan (4  April 2005). "Remarks by Chairman Alan Greenspan, Consumer Finance At the Federal Reserve System's Fourth Annual Community Affairs Research Conference, Washington, D.C." Federal Reserve Board. {{cite news}}: Check date values in: |date= (help)
  28. ^ "In early 2004, he urged homeowners to shift from fixed to floating rate mortgages, and in early 2005, he extolled the virtues of sub-prime borrowing—the extension of credit to unworthy borrowers. Far from the heartless central banker that is supposed to “take the punchbowl away just when the party is getting good,” Alan Greenspan turned into an unabashed cheerleader for the excesses of an increasingly asset-dependent U.S. economy. I fear history will not judge the Maestro's legacy kindly." Stephen Roach (16  March 2007). "The Great Unraveling". Morgan Stanley. {{cite news}}: Check date values in: |date= (help)
  29. ^ "Greenspan allowed the tech bubble to fester by first warning about irrational exuberance and then doing nothing about via either monetary policy or, better, proper regulation of the financial system while at the same time becoming the “cheerleader of the new economy”. And Greenspan/Bernanke allowed the housing bubble to develop in three ways of increasing importance: first, easy Fed Funds policy (but this was a minor role); second, being asleep at the wheel (together with all the banking regulators) in regulating housing lending; third, by becoming the cheerleaders of the monstrosities that were going under the name of “financial innovations” of housing finance. Specifically, Greenspan explicitly supported in public speeches the development and growth of the risky option ARMs and other exotic mortgage innovations that allowed the subprime and near-prime toxic waste to mushroom." Nouriel Roubini (19  March 2007). "Who is to Blame for the Mortgage Carnage and Coming Financial Disaster? Unregulated Free Market Fundamentalism Zealotry". RGE Monitor. {{cite news}}: Check date values in: |date= (help)
  30. ^ http://www.businessweek.com/magazine/content/04_29/b3892064_mz011.htm
  31. ^ http://online.wsj.com/article/SB118978549183327730.html
  32. ^ http://www.washtimes.com/national/20050304-102717-1490r.htm
  33. ^ http://www.truthout.org/cgi-bin/artman/exec/view.cgi/38/9097
  34. ^ http://www.foxnews.com/story/0,2933,147972,00.html
  35. ^ http://www.washingtonpost.com/wp-dyn/articles/A5396-2005Mar3.html
  36. ^ http://seniorjournal.com/NEWS/SocialSecurity/5-02-16GreenspanSays.htm
  37. ^ http://usliberals.about.com/od/peopleinthenews/a/Greenspan1.htm
  38. ^ http://quote.bloomberg.com/apps/news?pid=10000087&sid=aRR5whQ7nGvE&refer=top_world_news
  39. ^ http://www.foxnews.com/story/0,2933,149556,00.html
  40. ^ http://www.truthout.org/cgi-bin/artman/exec/view.cgi/37/9453
  41. ^ http://www.msnbc.msn.com/id/18703142/
  42. ^ http://www.washingtonpost.com/wp-dyn/content/article/2006/11/06/AR2006110600588.html
  43. ^ http://www.msnbc.msn.com/id/17343814/
  44. ^ http://www.db.com/presse/en/content/press_releases_2007_3606.htm
  45. ^ http://www.reuters.com/article/wtMostRead/idUKN1420623220070915
  46. ^ http://online.wsj.com/article/SB118978549183327730.html
  47. ^ http://www.nytimes.com/2007/09/15/business/15greenspan.html
  48. ^ Graham Paterson, "Alan Greenspan claims Iraq war was really for oil" September 16, 2007 The Sunday Times
  49. ^ Bob Woodward, "Greenspan: Ouster Of Hussein Crucial For Oil Security" September 17, 2007 Washington Post

Further reading

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Interviews

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Preceded by Chairman of the Federal Reserve
1987–2006 		Succeeded by
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