Alan Greenspan: The Oracle Behind the Curtain

208 Pages·2006·3.38 MB·English

by  E. Ray Canterbery

ALAN
GREENSPAN
The Oracle ehind the Curtain
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ALAN
GREENSPAN
The Oracle Behind the Curtain
E. Ray Canterbery
Florida State University, USA
W
World Scientific
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ALAN GREENSPAN
The Oracle Behind the Curtain
Copyright © 2006 by World Scientific Publishing Co. Pte. Ltd.
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ISBN 981-256-606-6 (pbk)
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Printed in Singapore.
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CONTENTS
A PERSONAL NOTE vii
ONWARD ix
1 GREENSPAN AND THE MYTH OF HIS PURITY 1
2 ADAM SMITH, FREE MARKETS AND THE
GREENSPAN STANDARD 9
3 WHEN MARKETS HAVE FAILED, GREENSPAN
HAS BEEN ON THE SCENE 17
4 THE INDEPENDENCE OF ALAN GREENSPAN
AND THE FEDERAL RESERVE SYSTEM 27
5 FEDSPEAK AND THE INNOCENT HYPOCRISY
OF INDEPENDENCE 36
6 WHITE HOUSE DEPENDENCE AND THE
HYPOCRISY OF PERSONAL INTERFERENCE 45
7 GREENSPANMAIL REDEFINES THE
NEW DEMOCRATS 52
8 FED AND WHITE HOUSE DEPENDENCE ON
WALL STREET INVESTMENT BANKERS 61
9 THE FABLE OF THE GOLDILOCKS ECONOMY 69
v
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vi Contents
10 THE WOLF AT THE DOOR OF
ORDINARY WORKERS 75
11 GLOBAL MARKET FAILURES 82
12 THE COLLAPSE OF THE GREAT AMERICAN
STOCK MARKET BUBBLE 92
13 DERIVATIVES: THROWING IN THE CHIPS 102
14 FED DEPENDENCE ON HEDGE FUNDS? 109
15 GREENSPAN TAKES US FROM GOLDILOCKS
TO THE SOFT PATCH AND BACK AGAIN 118
16 THE HOUSING BUBBLE CONUMDRUM 126
17 SOCIAL SECURITY: ON THE CUTTING EDGE
OF FEDERAL BUDGET DEFICITS 136
18 GETTING PERSONAL WITH SAVINGS,
AT HOME AND ABROAD 145
19 KING ALAN II 155
20 PROSPECTS FOR REFORM 160
NOTES 168
INDEX 181
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A PERSONAL NOTE
AlanGreenspan:TheOracleBehindtheCurtainisasequeltomyWall
StreetCapitalism(WSC).Asatthemovies,however,itisquitedifferent
fromtheoriginal.Apropos,peopleintheglobalcommunity,especially
businesspeople and economists, view Greenspan as a celebrity. True,
his face is one of the most recognizable on earth—a deeply-etched
face that reflects a gravitas beyond timeless gravity. The only musical
celebrity with competitive wrinkles is Mick Jagger who went to the
LondonSchoolofEconomicsonascholarshipbeforedroppingoutto
become a rock star. Greenspan graduated summa cum laude, with a
B.S.ineconomicsfromNewYorkUniversity;later,hedroppedoutof
graduate school to become a Jazz musician. Now, it is difficult to tell
whoisthebiggerstar,thoughnowinreversedfields.Greenspanisthe
conductor of money policy.
Greenspan’s fame has led to titles as varied as maestro, wizard,
oracle, and the Pope of Wall Street. His public image conveys all such
jobdescriptions,sowewillalternatetheseidentities.Ofcelebritieslike
theLondonSchooldrop-out,Greenspan’sfamewilllastmorethanthe
proverbialfifteenminutesontheworldstage.Inthisway,hiscelebrity
status is a reflection of his powers—past, present and future. As with
rock stars, people generally know more about Greenspan’s personal
lifethanhisprofessionaltricks;unlikeourintimateknowledgeofrock
stars, we know little. For example, we know that Greenspan likes to
take notes every morning in the bathtub before hurrying off to give
a speech whether it be as head of the Federal Reserve or otherwise,
butwemayneverknowwhathemeantwhenhesaid“hedgefundsare
strongly regulated by those who lend the money.” Or, will we?
So, this volume is different from WSC in several respects, but not
simply for the new entertainment content. Why different? In abject
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viii APersonalNote
honesty, some earlier warnings bear repeating and updating because
the dangers to the U.S. and the global economy have seldom been
greater.Withmorethanadequatediscomfort,Ihavecometothesame
conclusion as in WSC and in my The Making of Economics—namely,
that ideology is often more powerful and decisive than reason. Alan
Greenspan, as his unique kind of celebrity, has a lot to do with it. His
economic and political powers likely will not only be preserved, but
also extended. These powers and his legacy would be minimal absent
ideologyandAlan’slifetimesuccesspromotingafreemarketideology.
After all, we live in an age when The Market has become God and
creationism is being touted as on equal footing with the science of
evolution.AlanGreenspanisnotareligiousman,exceptforhisdevout
belief in The Market. History’s most renowned central banker sees
marketsassciencepresentattheCreation,andhasdifficultyseparating
his church from state.
Cynicismwouldbetheeasybutunproductivepathtounderstand-
ingthepowersthatareGreenspanandthathavedefinedtheAmerican
central bank. I have gleaned Greenspan and the Fed’s history mostly
from public records, while the social satire and good humor is of my
own creation, though having evolved over the years.
E. Ray Canterbery
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ONWARD
Newswiresareatwitter.TheCNBCmorningbusinessnewsteammem-
bers always speak in quick, excited voices when any Federal Reserve
news is about to made. Or, in truth, every twitch in a stock price,
quarterly earnings report or interest rate elicits animated behavior far
outofproportiontothesizeofthespasm.RickSantelliatCNBCcan
bring the same drama even to the bond market. This could have one
ofanynumberofdays.Thisday,however—evenforbreakingbusiness
news—is special. It is the third weekend in June 2004.
AlanGreenspanissworninaschairoftheFederalReserveBoardof
Governors for an unprecedented fifth term. The degree of excitement
is exceptional despite its long-awaited inevitability. News reports at
his Papal-like “election” say that Greenspan has told friends that he
will “retire” at the end of January 2006. Although the Fed’s chair is
nominated by the President and senatorially confirmed (with minimal
opposition), no president has acted as if he had a choice regarding
Greenspan’s re-appointment. Once appointed, in any case, the chair
answers to neither the president of the United States, the Congress
nor anyone else.
What Mr. Greenspan told his friends suggests that he considers
“retirement” from the chairmanship as voluntary. According to cur-
rent law, however, a Governor who serves a full term can’t be reap-
pointed. Since Greenspan originally took office as Chairman to fill an
unexpired term as a member of the Board on August 11, 1987, his
full fourteen-year term as a Governor did not began until February
1, 1992, and does end January 31, 2006. His “retirement” nonethe-
less is not as inevitable as his appointment. The oracle of monetary
policyhasanenviablerecordofpredictableretirementstatementspre-
cedingpresidentialelections.Itwasalwaysahedge,reflectingperhaps
ix