Alan Greenspan, the former Federal Reserve Board chairman who presided over a long period of economic stability and prosperity and was accorded rock-star status in the financial world only to have his reputation tarnished in the wrenching recession and global credit crisis in 2008, has died at the age of 100.
A towering figure in American finance who influenced a generation of central bankers worldwide, Greenspan died Monday from complications of Parkinson’s Disease, according to his wife, Andrea Mitchell.
“To me he was my husband, who shaped my life from our very first date in 1984,” Mitchell said in a statement reported by NBC News where she serves as the network’s chief Washington correspondent. “He had ‘irrational exuberance’ for baseball, the Washington Commanders, tennis, golf, and music, especially jazz. He will be remembered for his brilliance and his kindness. Being his life partner was the joy of my life.”
Greenspan headed the Fed from 1987 to 2006, a span in which the U.S. economy enjoyed relatively steady growth and low inflation. Though he received much of the credit, Greenspan benefited from the tough, inflation-breaking policies of his immediate predecessor, Paul A. Volcker; the rise of the Internet age; and the dissolution of the Soviet Union that began in the late 1980s.
After Greenspan’s retirement, his performance was reassessed more harshly in light of the turmoil that began to emerge the following year in financial and real estate markets. Critics blamed Fed hubris and its easy-money policies and especially light-handed regulation of banks for helping to create conditions that led to the Great Recession, the longest economic contraction in the U.S. since the Great Depression.
He defended himself vigorously in writing and in interviews, telling CNBC in April 2008 that he had “no regrets” about his policies.
But in October 2008 at the height of the global economic turmoil fueled by America’s home mortgage meltdown, Greenspan appeared on Capitol Hill to a reception entirely different from the adulation he received while chairman. The grim-faced Greenspan could offer only a limited defense of his economic policies and said he was in a state of “shocked disbelief” at the breakdown of the credit markets, which he called a “once-in-a-century credit tsunami.”
He conceded that he was wrong in assuming that free-market forces would prevent such a crisis.
“There was just this view that financial markets were going to regulate themselves,” said Gary Richardson, a UC Irvine economics professor who was the Fed’s official historian from 2012 to 2016. “He got in the driver’s seat when the deregulation trend was incipient. He was a champion of deregulating the financial industry.”
At the same time, Richardson noted that under Greenspan, the Fed’s gravitas and influence in the world had reached unparalleled heights. And during his helm at the central bank, the U.S. economy would achieve what then was a record 10 straight years of uninterrupted growth.
“His decisions helped to promote this period of global prosperity and stability,” he said.
During Greenspan’s watch under four U.S. presidents, the Fed coped successfully with emergencies such as the stock market crash of 1987, financial crises in Mexico and Asia in the 1990s, the collapse in 1998 of giant U.S. hedge fund Long-Term Capital Management, the bursting of the dot-com stock bubble beginning in 2000, and the economic fallout from the Sept. 11 terrorist attacks in 2001.
One of Greenspan’s most enduring legacies at the Fed was the way in which the dour and bespectacled New Yorker helped unravel the central bank’s mystique. During his tenure, the Fed for the first time began releasing public statements describing the actions of its monetary policy-setting Federal Open Market Committee. It was a sea change as investors previously would have to guess the Fed’s posture toward interest rates by watching for changes in the Treasury bond market.
His immediate successor, Ben S. Bernanke, would significantly expand what Greenspan had begun, increasing the flow of information to the public and markets by holding regular news conferences and providing more guidance on Fed’s thinking on policies and the economy.
The move toward greater Fed transparency, which was followed by central bankers around the globe, didn’t mean Greenspan’s statements weren’t without mystery. During regular testimony in Congress — the main forum for Fed chiefs to discuss their policies — Greenspan perfected a nearly impenetrable mode of communication that came to be known as “Fedspeak,” or “Greenspeak.”
“Since I’ve become a central banker, I’ve learned to mumble with great incoherence,” Greenspan once told a panel on Capitol Hill, adding: “If I seem unduly clear to you, you must have misunderstood what I said.”
In an interview after leaving office, Greenspan admitted that he had been deliberately cryptic in his public statements in order to discourage market players from trading on his remarks. Such efforts notwithstanding, he could not keep investors from hanging on his every word for a clue as to the direction of interest rates.
Having built a lucrative economic forecasting business before entering public life, Greenspan had a practical grasp of the workings of industrial America that deeply influenced his thinking at the Fed, which wields its influence mostly by setting short-term interest rates — raising them to slow the economy and squelch inflation or lowering them to stimulate investment and growth. He was known to enjoy pondering economic minutiae while taking lengthy baths to relieve back problems.
“The guy just had an incredible feel for the data,” said Columbia University economist Frederic S. Mishkin, who worked as an advisor under Greenspan.
In one of his greatest insights, Greenspan came early to realize that the worker productivity boom fueled by the rise of the internet had profound inflation-damping side effects. Thus, he dared to break with long-held dogma that the economy would overheat and spark runaway inflation if allowed to grow at a sustained rate of much above 2.5% per year. In the late 1990s, Greenspan’s Fed kept its foot off the brakes as economic growth cranked up to an annual clip of more than 4% for several years.
The gamble worked: Not only did inflation stay low, but wages rose and the jobless rate in 2000 sank below 4% for the first time in 30 years. According to supporters, Greenspan’s theories about full employment, rising incomes and only moderate inflation helped make life better for millions of Americans who hadn’t fully shared in previous bursts of economic prosperity.
Greenspan’s first serious challenge, the Black Monday crash of Oct. 19, 1987, came just two months after he’d taken over the Fed chairmanship from Volcker. After the Dow Jones industrial average fell 23%, its second-worst day ever, Greenspan assured a badly rattled Wall Street that “the Fed stands ready to provide all necessary liquidity.” That calming pronouncement, backed by an infusion of cash into the economy, was credited with limiting damage from the crash and helping set the stage for the roaring bull market of the 1990s.
Detractors, though, faulted Greenspan for playing politics, particularly in his public endorsement of the sweeping tax cuts that President George W. Bush, a fellow Republican, put through in his first term. But Greenspan’s policies could cut both ways. Bush’s father, President George H.W. Bush, partly blamed high interest rates imposed by Greenspan’s Fed for his 1992 reelection loss to Bill Clinton.
Contemporary views of Greenspan remain largely positive. Popular with Congress and the White House, he was appointed to a record five four-year terms, first by President Reagan in 1987 and later by the senior Bush, Clinton and George W. Bush. He retired from the Fed in early 2006, giving way to the academic economist Bernanke. By that time, the Fed’s dominance in worldwide financial affairs was on the wane because of the globalization of financial markets, the increasing influence of Europe after its mid-1990s economic unification and the rise of China and India to the status of economic superpowers.
Greenspan stayed in Washington as a consultant, but his public appearances were relatively scarce in the aftermath of the financial crisis. In one of his last public speeches, in February 2019, he warned about the economic costs of Social Security and other entitlement programs and what he viewed as an inevitable rise in inflation from America’s increased indebtedness. Though his speech was laden with economic jargon, there was little Greenspeak in his conclusion about the consequences of the rapid growth of entitlements and a political system driven by populism.
“The long-term outlook is terrible,” he said in accepting a lifetime achievement award from the National Assn. for Business Economics — one of many forms of recognition that included honorary degrees from Harvard and Yale, France’s highest order of merit, an honorary knighthood from Britain as well as the Presidential Medal of Freedom presented by President George W. Bush.
Greenspan was born in New York on March 6, 1926. His father, a stockbroker, and his mother, a salesclerk, divorced when Greenspan was 3.
Although Greenspan was regarded as something of a mathematical prodigy, his post-high school interests lay elsewhere. He enrolled at the prestigious Juilliard School, where he spent two years studying saxophone and clarinet before dropping out in 1944 to play professionally with the Henry Jerome swing band.
Greenspan quit at age 19 after only a year on the jazz circuit. He later explained to biographer Steven Beckner: “I was a pretty good amateur musician, but I was average as a professional, and I was aware of that because you learn pretty quickly how good some professional musicians are.”
He returned to college, this time to study economics at New York University’s business school, earning a bachelor’s and master’s degree in economics. He went on to do postgraduate work at Columbia under future Fed chairman Arthur F. Burns, but in 1953 left academia and formed an economic consulting company in New York with Wall Street bond trader William Townsend. The partnership flourished, attracting Fortune 500 corporations as clients.
In 1952, Greenspan married an abstract expressionist artist named Joan Mitchell and soon came under the intellectual sway of one of her acquaintances, Ayn Rand, author of “The Fountainhead” and “Atlas Shrugged.” Rand’s Objectivist school regarded capitalism as morally superior to other systems and condemned government regulation as an impingement on the freedom of the individual. Greenspan’s marriage was annulled amicably after a year, but his friendship with Rand lasted until her death in 1982.
Fellow Rand adherent Martin Anderson recruited Greenspan as an advisor to Richard M. Nixon’s 1968 presidential campaign. Greenspan said in a 2007 interview that while he considered Nixon one of the two brightest presidents he’d known — the other being Clinton — he felt that Nixon possessed a split personality, which Greenspan found “scary.” After Nixon’s election, Greenspan declined several invitations to join the new president’s staff but finally agreed to sign on in 1974, just before Nixon resigned as the Watergate scandal erupted.
Greenspan remained in Washington as chief economic advisor to President Ford, establishing ties with a crowd that included Ford’s chief of staff, Dick Cheney, who became Defense secretary under the elder President Bush and vice president under Bush’s son. Greenspan returned to New York and life as a consultant after Ford’s 1976 defeat by Jimmy Carter, teaching as an adjunct professor at New York University where he obtained a Ph.D. in economics in 1977, even as he kept up contacts with his Republican allies until the call came from Reagan in 1987.
During that time away from the Beltway, Greenspan’s reputation suffered one of its worst blows from a consulting job he accepted in 1984. The client was Charles H. Keating Jr.’s fast-growing Irvine-based Lincoln Savings, which was seeking exemption from federal regulations limiting a savings and loan institution’s ability to invest directly in real estate. Greenspan, in a 1985 letter to regulators and in testimony to Congress, attested to Lincoln’s financial strength and the prudence of its lending program. Lincoln’s collapse four years later cost the government billions and was the largest failure in the S&L crisis, which then was the biggest banking crisis since the Great Depression.
With his high and deeply wrinkled brow and perpetually downturned mouth, Greenspan appeared morose, but he could be quite funny and was popular on the Washington social scene. After dating for several years, in 1997 he married NBC-TV correspondent Andrea Mitchell, who survives him. He had no children.
Greenspan was an avid tennis player and golfer. Former congressman Michael G. Oxley, who golfed with him a number of times, said Greenspan’s enthusiasm for the game was high but his skill level “sub-mediocre.”
As on Wall Street, the media’s absorption with Greenspan during his years as Fed chair generated stories and legends. In a 1998 article in the New Republic co-authored by Stephen Glass, then a rising star at the magazine who soon would be exposed as a serial fabricator, the writers described a Wall Street investment firm where bond traders had set up a shrine to the Fed chief, complete with dozens of news photos, quotations from his speeches and a red leather chair — cordoned off with “blue velvet ropes” — in which Greenspan supposedly had sat in 1948. One trader said that when he’d had a bad day in the market, he would sit in the chair for “inspiration.”
Like much of what Glass wrote, the scene turned out to be utter fiction, but it was a measure of Greenspan’s aura that at the time it seemed plausible.
Washington journalist Bob Woodward titled his mostly complimentary Greenspan book “Maestro” in deference to the Fed chairman’s seemingly infallible handling of the economy.
After turning over the Fed reins to Bernanke, Greenspan more than once caused markets to shudder by issuing public warnings about, for example, the threat of recession in 2007, problems in the Chinese stock market and what he saw as a looming global liquidity crunch.
Some commentators thought it unseemly of Greenspan to be kibitzing from the sidelines while his less-celebrated successor was trying to develop his own style and policies.
Greenspan’s memoir, “The Age of Turbulence,” for which he reportedly collected an $8.5-million advance, also made a splash with its not-always-flattering inside glimpses of presidents Greenspan had known, from Nixon to the younger Bush.
Retrospective views of Greenspan’s chairmanship were less glowing than contemporary accounts, largely because of the hole that the economy fell into after his departure and Greenspan’s outsized influence with policymakers who brought a rapid and deep deregulation of the financial system starting in the 1980s, sowing the seeds of the Great Recession.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, blamed Greenspan’s ideological rigidity for the Fed’s failure to curb excesses and abuses in the nonbank mortgage lending sector. Zero-down-payment mortgages with low “teaser” rates and “no-doc” applications encouraged people to stretch for home loans they couldn’t afford, which Frank believed set the stage for the “sub-prime” mortgage crisis that played havoc with global financial markets and ushered in the economic free-fall of 2008.
According to Frank, the Greenspan Fed refused to rein in such lending practices because of its chairman’s belief that markets correct their own problems more effectively than regulators can.
Greenspan himself had no argument with that interpretation and in fact used it in his defense.
“Regulation by its nature inhibits freedom of market action, and that freedom to act expeditiously is what rebalances markets,” Greenspan wrote in his memoir. “Undermine that freedom and the whole market-balancing process is put at risk.”
Mulligan is a former Times staff writer
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