Economist and Former Federal Reserve Chair Dies Age 100

Alan Greenspan was one of the most influential—and controversial—U.S. Federal Reserve chairs to ever serve in that position. He died on Monday at age 100 from complications of Parkinson’s disease, according to his wife, NBC News correspondent Andrea Mitchell.

During his more than 18 years leading the Fed, from 1987 to 2006, Greenspan was both lionized and demonized. For much of his tenure, he was viewed as the maestro of the 1990s economic boom, an economist with an almost preternatural feel for tweaking interest rates. (Washington Post legend Bob Woodward, no hagiographer, even wrote a 2000 book about Greenspan titled Maestro.)

During his more than 18 years leading the Fed, from 1987 to 2006, Greenspan was both lionized and demonized. For much of his tenure, he was viewed as the maestro of the 1990s economic boom, an economist with an almost preternatural feel for tweaking interest rates. (Washington Post legend Bob Woodward, no hagiographer, even wrote a 2000 book about Greenspan titled Maestro.)

But after the 2008 financial crash, many legislators and experts blamed Greenspan for enabling rampant mortgage fraud while encouraging the broad deregulation of banking and finance. Along with other regulators in the Clinton administration, he had also pushed for repeal of the Glass-Steagall Act, created during the Great Depression to separate traditional banking from riskier investment banking.

In some ways, Greenspan may have been a victim of his own mythic success. “When it got established that Greenspan was the maestro and he was going to save markets when anything got scary, that in itself was extremely risk-producing,” Justin Fox, the former editorial director of Harvard Business Review, told Foreign Policy.

Greenspan steps away after meeting members of the House Oversight and Government Reform Committee during a hearing on Capitol Hill in October 2008. The committee was hearing testimony on the roles and responsibilities of federal regulators in the ongoing financial crisis.Mark Wilson/Getty Images

By the end of the 1990s, his reputation for reading the markets flawlessly and his desire to keep the boom going became known as the “Greenspan put”—a “put” being a reverse option used to hedge against a downturn. This meant that market players could place a dependable bet on Greenspan’s determination to quickly stem a serious drop in the markets, while at the same time believing that he would be reluctant to interfere with rising values.

Greenspan himself never admitted responsibility for the events leading up to the Great Recession, although he later conceded that banks should have higher capital requirements. But in testimony before the U.S. House Committee on Oversight and Government Reform in October 2008, the former Fed chief professed his “shocked disbelief” that his lifelong faith in free markets and the idea that banks and corporations could mostly regulate themselves no longer seemed as valid as before.

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such … that they were best capable of protecting their own shareholders and their equity in the firms,” Greenspan said. Instead, he acknowledged, “the whole intellectual edifice” had collapsed.

More than that, she imbued Greenspan with the belief that markets should be interfered with as little as possible—especially banking markets. In 1963, Greenspan wrote an article in Rand’s newsletter, The Objectivist Newsletter, dismissing as a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.” He later invited Rand to attend his swearing-in as chairman of President Gerald Ford’s Council of Economic Advisers.

Greenspan’s mother, Rose Goldsmith (from left); President Gerald Ford; Greenspan; libertarian writer Ayn Rand; and Rand’s husband, Charles Francis O’Connor, pose for a photograph after Greenspan’s swearing-in as chairman of the Council of Economic Advisers in the Oval Office of the White House on Sept. 4, 1974.David Hume Kennerly/The Gerald R. Ford Library/Getty Images

“Ayn Rand’s philosophical theories were overriding,” said Kathryn Eickhoff, who ran Greenspan’s former consulting firm, Townsend-Greenspan, after he went to Washington, first to work as an advisor to Richard Nixon during his 1968 presidential campaign, then to serve as chairman of the Council of Economic Advisers, and finally as Fed chief. “I viewed it as my responsibility to see to it that our [consulting firm’s] commentary did not inadvertently imply that there should be greater government intervention,” Eickhoff told me in an interview in 2009.

At the same time, paradoxically, Greenspan was never fully a believer in the rationality of markets. He knew that financial “bubbles” created by market mania could arise, and he became notorious for warning market players against “irrational exuberance” in a speech in December 1996. Shortly before he left office, at a 2005 celebratory symposium titled “The Greenspan Era: Lessons for the Future” at the annual Jackson Hole, Wyoming, conference for central bankers, the outgoing Fed chair himself expressed worries about the housing bubble, warning against “protracted periods of low risk premiums.”

But Greenspan also was convinced there was little that any regulator could do about bubbles because no one could predict when they would burst. Thinking that the subprime mortgage bubble would probably go the way of the dot-com bubble of the 1990s, he suggested merely that “the housing boom will inevitably simmer down.” Greenspan, as well as virtually every other regulator, failed to see that the entire financial sector was leveraged to the hilt in peddling complex mortgage-backed securities that would ultimately threaten nearly every major bank with collapse.

His free market views deeply influenced officials on both sides of the political spectrum, bolstering the deregulatory fervor of key members of the Clinton administration such as Treasury Secretary Robert Rubin and his then-deputy, Larry Summers.

Greenspan answers questions on a live television feed on Feb. 17, 2005, while a trader at the Chicago Board of Trade conducts a trade.Frank Polich/Reuters

Nonetheless, at the height of his fame and prestige, Greenspan came to be seen as the embodiment of America’s post-Cold War economic success, and his runic pronouncements were endlessly parsed by every market player on the planet. Even the size of his briefcase became a market indicator on CNBC: If it looked well stuffed on his way into the office, market analysts suggested, that meant he was preparing to argue to the Fed governors that interest rates must go up. (In fact, Greenspan later revealed in his memoir that all it really meant was that he’d packed his lunch that day.)

Such was his reputation that at Greenspan’s annual testimony to Congress in 1997, Rep. Michael Castle, chair of the House subcommittee that oversaw Federal Reserve activities, compared him to a Roman general at a triumph. The subcommittee, Castle told Greenspan, was like the servant holding a laurel wreath above his head and whispering in his ear, “Remember, you are only human.”

The rumpled, rheumy-eyed Fed chief was deemed a master at what market experts called “the preemptive strike.” That meant raising interest rates before, rather than when, inflation shows up in the numbers. At the same time, however, Greenspan was praised for seeing before almost anyone else that in the immediate post-Cold War era, inflation might not rise as fast as productivity shot up, thanks to new information technologies and the fact that some 3 billion people who had formerly lived within the stagnant communist bloc had been made into a productive force. By not raising rates when his colleagues urged him to do so in the 1990s, Greenspan kept the boom going.

Holding his famed briefcase, Greenspan walks into the Federal Reserve building in Washington, D.C., on Aug. 21, 2001. Some analysts believed that if the briefcase looked well stuffed on Greenspan’s way into the office, this meant he was preparing to argue that interest rates must go up.STEPHEN JAFFE/AFP via Getty Images

“The 1990s was his baby,” a former senior Fed official told me in a 2010 interview, speaking on condition of anonymity. “Alan Greenspan did great things for his country. Millions of Americans owe their jobs to him. If he had listened to us, and to the other Fed governors, he would have raised rates and caused more unemployment. It’s a shame, because he will be remembered more for what he didn’t do, on the regulatory side.”

Other analysts take a dimmer view of Greenspan’s overall legacy. “Greenspan was treated as a seer but his actual policies were disastrous at several points,” even apart from the 2008 crash, said Robert Kuttner, co-editor of The American Prospect, in an email. “In the 1990s, he pushed Clinton to take the budget deficit all the way to surplus as a condition of lowering interest rates, when the economy needed the public investment and modest deficits were no problem. Then he kept rates too low for too long, which inflated the bubble economy of the late 1990s. He did this in order to bail out banks that had made speculative investments.”

It was largely thanks to Greenspan’s successor, Ben Bernanke, that the Federal Reserve finally adopted a more activist approach to ensuring that the financial sector remained well regulated by the government. In the end, Greenspan’s tenure as the second-longest-serving Fed chair ever—after William McChesney Martin, who served from 1951 to 1970—will likely be remembered as the last gasp of the post-Cold War era when financial firms were largely left to their own devices.