Greenspan, Alan

Alan Greenspan was chairman of the Federal Reserve Board from August 1987 until January 2006. A Republican and free market advocate, Greenspan was often accused of straying across the line of political neutrality that his predecessors had observed. Some referred to him as a “political hack” who put the interests of his party before those of the country. For example, Greenspan's White House visits varied depending on the sitting president's political party. During Bill Clinton's second term, Greenspan met with the Democratic president roughly 12 times per year; in George W. Bush's first term, Greenspan met with the Republican president roughly 53 times per year. Greenspan's discussions of and explanations about the health and direction of the economy were often confusing, and he was often accused of being deliberately ambiguous—an accusation that he did not try to refute.

As a young man, Greenspan set his sights on a career as a jazz musician, but his ability with mathematics and a fascination with the philosophy of Ayn Rand led him to graduate work in economics at New York University (NYU). He left NYU without submitting a dissertation in order to found Townsend-Greenspan, a consultancy firm he would preside over from 1954 to 1987. He chaired President Gerald Ford's Council of Economic Advisers (CEA) from 1974 to 1977 and the National Commission on Social Security Reform from 1981 to 1983.

One of the key functions of the Federal Reserve chairman is to predict how the economy is going to perform. Greenspan, however, had never proven to be particularly adept at such forecasting. The following examples illustrate how Greenspan missed the target.

When the Federal Reserve ranked firms on their forecasting abilities, Townsend-Greenspan came in last.

In January 1973, four days before the Dow Jones began a two-year slide losing 46 percent of its value and throwing the country into a two-year recession, Greenspan confidently told the New York Times that investors could be particularly “bullish” in their approach to the stock market.

In 1985, two years before he was appointed to lead the Federal Reserve, Greenspan wrote a letter to federal regulators in support of Lincoln Savings and Loan. He argued that the savings and loan was being run in exemplary fashion by Charles Keating and that it was making sound investments. As such, it presented no risk to the Federal Savings and Loan Insurance Corporation (FSLIC). In reality, Lincoln was involved in massive fraud, was seized by regulators in 1989, and Keating was sent to prison.

[Page 425]During Greenspan's 1987 confirmation hearings as Federal Reserve Chairman, he was chided for the inaccuracy of his predictions while he was chairman of Ford's CEA. Senator William Prox-mire pointed out that the predictions of the CEA were seriously flawed, the farthest off of any predictions made from 1976 to 1978.