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Former Federal Reserve Chair Alan Greenspan delivers the keynote address at the IMF Statistical Forum/Statistics for Policy Making in Washington, D.C., on Nov. 18, 2014. Greenspan died on Monday at age 100.
Paul J. Richards/AFP via Getty Images
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Alan Greenspan, who steered the Federal Reserve for nearly two decades, through some of the longest economic booms in U.S. history, has died. Greenspan died Monday at his home in Washington. He was 100.
Greenspan was the rare celebrity among central bankers, lionized for his economic stewardship in the 1990s. At a time when it seemed every barbershop had a television tuned to the stock market channel, ordinary Americans hung on the Fed chairman’s every word.
His reputation was tarnished, however, by the global financial crisis that struck a decade later.
Greenspan liked to write speeches in the bathtub, but it was his listeners who were sometimes left feeling underwater by the unfamiliar dialect known as “Fedspeak.”
Greenspan later acknowledged that he would deliberately garble his syntax to avoid saying anything that might move financial markets.
A notorious exception came in 1996, when Greenspan seemed to suggest that stock prices might be getting ahead of themselves.
“How do we know when irrational exuberance has unduly escalated asset prices?” he asked during a speech at the American Enterprise Institute.
The warning that exuberant investors might not be quite rational sent temporary shivers through global stock markets. But Greenspan’s own stock continued to climb.
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Fed Chair Alan Greenspan testifies before the Joint Economic Committee in Congress in Washington, D.C., on June 17, 1999.
Tim Sloan/AFP via Getty Images
Greenspan dabbled in 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 Mitchell, not then-first lady Hillary Clinton, was married 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 the widely shared prosperity at the end of the 20th century.
A master of monetary policy, Greenspan led the central bank under four different presidents, beginning in 1987.
Much of his tenure was marked by falling unemployment. Traditionally, central bankers respond to low unemployment by raising interest rates to ward off inflation. But Greenspan broke with that tradition and kept borrowing costs low.
“He was willing to watch and wait as the unemployment rate drifted lower and lower and lower and lower, and we still had no inflation,” recalled Princeton economist Alan Blinder, who served under Greenspan on the Fed’s governing board.
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Former Fed Chair Alan Greenspan and his wife, television journalist Andrea Mitchell, attend a reception with Japanese Prime Minister Yoshihiko Noda at the Japanese Embassy in Washington, D.C., on April 29, 2012.
Nicholas Kamm/AFP via Getty Images
Greenspan oversaw an economic boom
Greenspan’s gamble with low rates paid off, and the economy kept booming for a decade, although critics argue his easy-money policies also helped inflate the dot-com bubble and later fueled the subprime mortgage meltdown.
In addition to low interest rates, Greenspan pursued a light touch on regulation, refusing to use the Fed’s powers to crack down on risky lending. His libertarian philosophy was shaped in part by the novelist Ayn Rand.
Greenspan had been 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 adviser, Rand attended his swearing-in ceremony.
“Greenspan said that Ayn Rand put the moral foundation under capitalism for him,” said Rand’s biographer, Anne Heller.
Greenspan believed bankers didn’t need heavy-handed regulation because their own self-interest would prevent them from taking undue risks. Only after risky banking helped trigger the global financial crisis in 2008 — two years after he left the Fed — would Greenspan sheepishly admit that he’d been wrong.
“I was shocked because I had going for 40 years or more with very considerable evidence that it was working exceptionally well,” Greenspan told a congressional committee investigating the financial meltdown.
Tim Sloan/AFP via Getty Images
Then-President Bill Clinton talks with then-Fed Chair Greenspan during the receiving line at the White House in Washington, D.C., on Dec. 31, 1999.
Tim Sloan/AFP via Getty Images
Greenspan long advocated for a light regulatory touch
The idea that bankers will sometimes take dangerous risks if they’re allowed to should not have come as a surprise to Greenspan, however.
Decades earlier, he’d played a bit part 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 for what he called “seasoned and expert” management at Lincoln Savings and Loan, in an effort to ward off regulation of the thrift.
Lincoln later collapsed, costing taxpayers billions. And its boss, Charles Keating, went to prison for fraud.
Economist Vincent Reinhart said it took courage for Greenspan to acknowledge, however 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 markets don’t always get it right,’ is a reflection on his entire career, not just his tenure at the Fed,” Reinhart said.
Ultimately, Greenspan will be remembered as both a maestro of monetary policy and a reluctant regulator. His legacy is shaped by the boom he fostered, and by the bust he failed to prevent.
John Ydstie contributed to this report.
