The Greenspan cult

Maestro: Greenspan's Fed and the American boom, by Bob Woodward, Simon & Schuster, 270 pages
Greenspan: The man behind the money, by Justin Martin, Perseus Publishing, 284 pages.

Few figures generate as much interest in the financial community as Federal Reserve Board chairman. Alan Greenspan. His awesome influence over the Fed - which has the power to set short-term interest rates, -- mean every statement he makes is minutely parsed, and has the potential to cause wide market fluctuations. But Greenspan's notoriety - more than that of any other Fed chairman - has spread outside financial circles.

The end of the Clinton presidency - before the economic boom that accompanied it crested -- creates a serious problem for his many detractors. How could a Democrat do so much better at managing the economy, than his Republican predecessors? The answer they say is that Greenspan - not Clinton - was responsible.

Clinton's critics would say that he rode strong economic fundamentals. Between 1992 and 2000, the American economy received a huge peace dividend due to the end of the Cold War. It also benefited from a series of technological and communications innovations coming to market just as the baby boom generation entering its most productive years.

But we like to associate achievements with individuals, and so many - especially Clinton's adversaries -- are increasingly crediting Alan Greenspan with America's strong economic performance during the 1990s. Hence a wave of interest which has spurred a flood of books about the Fed chairman.

And who is more likely to jump on a wave of popular interest than Bob Woodward, tormentor of Richard Nixon, Washington Post editor and author of nine best selling books? His latest work is a look at Greenspan's reign at the Fed, from his nomination in 1987 through to the end of the Clinton presidency.

Greenspan is the Talleyrand of American monetary policy. Like the former French prime minister, who saved his head thorough several changes in governments from Louis XVI to the revolution, the directory and back to the monarchy, the Fed chairman has demonstrated a remarkable ability to survive through successive administrations. He served first under Reagan, then Bush Sr., Clinton and now under Bush Jr.

Most interesting among these transitions, was his ability to survive the Clinton administration. You would have thought Greenspan - a devotee of Objectivist (libertarian-like) philosopher Ayn Rand - would have been the first on the block when the Democrats came to power in 1992.

But Clinton and Greenspan hit it off from the start - both were intellectuals, sax players and had lost their fathers early in life. It was thus easy for Clinton - a notorious charmer - to find common ground with the Fed chairman.

It did not hurt Greenspan that Republicans were criticizing him for aiding Clinton's presidential win by not raising interest rates fast enough to get the American economy out of the early 1990s recession in time for the election.

Greenspan's reappointment as Fed chairman under Clinton, is considered by many to be one of the key factors underlying America's strong economic performance throughout the 1990s. The exceptional economic conditions that George W. Bush inherits from the Clinton administration - notably a projected surplus that will total at least several trillion dollars "are in many respects the Greenspan dividend," says Woodward.

The two books will attract different audiences. Woodward is gossipy and detail oriented. He gives a fascination description of tree bark, while Martin -- a big picture guy -
better describes the forest.

Woodward introduces dozens of faceless characters that participated in the major events of Greenspan's reign such as the stock market crash of 1987, the Asian crisis, the failure of Long Term Capital Management and the high tech bubble. But his sources - mostly bankers, who agreed to be interview only off-the-record - appear to have given him little information beyond the importance of their own roles in the events he describes.

His book thus concerns itself excessively with who-said-what-to-whom at what party. He liberally quotes old transcripts of FOMC meetings, which reveal little. Woodward's frustrating attempt to also recreate dialogue that he did not witness, make the book a choppy read, and his use of quotation marks in those circumstances questionable.

Martin concerns himself more with the Greenspan, the man. He devotes only the last quarter of the book to his time at the Fed. But by interviewing his long-time friends, family and sweethearts, he describes a far more interesting character, making the book a better read.

If you can name three Fed governors, know the difference between the fed funds rate and the discount rate, and care whether it was Jim Baker or Howard Baker who first lobbied to get Greenspan named chairman, then Woodward's book is for you.

On the other hand, if you want a great human-interest story that tells a bit about the Fed's history and its crucial role in the U.S. economy, and its influence on the markets you are better off with Martin.

 

Diekmeyer is Montreal-based business writer. He can be reached at: peter@peterdiekmeyer.com

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