Excerpts from Alan Greenspan’s newly published memoirs...
On the author Ayn Rand:
I was intellectually limited until I met her.
On President George W. Bush:
For the five years we overlapped, [he] honored his commitment to the autonomy of the Fed... [He] remained tolerant of, if not
receptive to, my criticism of his fiscal policy… The administration also took the Fed’s advice on policies we thought were
essential for the health of the financial markets [such as cracking down on Fannie Mae and Freddie Mac] … [even though]
President Bush had very little to gain politically by supporting [such] a crackdown…
On Bush’s refusal to veto Republican bills:
My greatest frustration remained [his] unwillingness to wield his veto … [A] senior White House official [said that] the
president didn’t want to challenge House Speaker Dennis Hastert. “He thinks he can control him better by not antagonizing
him,” the official said … To my mind, Bush’s collaborate-don’t-confront approach was a major mistake.
On the invasion and occupation of Iraq:
Whatever their publicized angst over Saddam Hussein’s “weapons of mass destruction,” American and British authorities were
also concerned about violence in an area that harbors [so much oil]. I am saddened that it is politically inconvenient to
acknowledge what everyone knows: the Iraq war is largely about oil.
On former Fed Chairman Paul Volcker:
In conversation I always found him quite introverted and withdrawn… He was a bit of a mystery to me.
On former President Ronald Reagan:
Stored in his head must have been four hundred stories and one-liners; while most of them were humorous, he was able to tap
them instantly to communicate politics or policy. It was an odd form of intelligence, and he used it to transform the country’s
self-image.
On former President George H.W. Bush:
The economy was his Achilles’ heel, and as a result we ended up with a terrible relationship.
On Vice President Richard Cheney:
With his combination of intensity and sometimes sphinxlike calm, he’d shown extraordinary skill [as President Ford’s chief of
staff]. The camaraderie we built in those years following Watergate had not waned.
On former President Bill Clinton:
A fellow information hound [with] a consistent, disciplined focus on long-term economic growth. [His relationship with
Monica Lewinsky] made me feel disappointed and sad.
On Clinton Treasury Secretary Robert Rubin and Undersecretary Lawrence Summers during the Mexico peso devaluation crisis:
We became economic foxhole buddies. I felt a mutual trust with Rubin that only deepened as time passed.
On his testimony in January 2001, supporting tax cuts as long as the budget surplus continued:
I’d misjudged the emotions of the moment. We had just gone through a constitutional crisis over an election – which, I realized in hindsight, is not the best time to try to put across a nuanced position based on economic analysis. Yet I’d have given the
same testimony if Al Gore had been president.
On beginning to raise rates in 2004:
Our hope was to raise mortgage rates to levels that would defuse the boom in housing, which by then was producing an unwelcome froth
On sub-prime mortgages:
[T]he benefits of broadened home ownership are worth the risk. Protecti
On of property rights, so critical to a market economy, requires a critical mass of owners to sustain political support.
On capitalism:
The great “problem” inherent in capitalism [is] that creative destructi
On is often, and by a great many, viewed simply as destruction… Capitalism creates a tug-of-war within each of us. We are alternately the aggressive entrepreneur and the couch potato, who subliminally prefers the lessened competitive stress of an economy where all participants have equal incomes.
On the tensi
On in China between authoritarianism and capitalism:
The communist system is a pyramid in which power flows from the top … The system holds together because each official is beholden to the pers
On directly above him…. However, if market pricing is substituted for any level of the pyramid, political control is lost. You cannot have both market pricing and political control… Today, President Hu appears to wield less political power than did Jiang Zemin, and he less than Deng Xiaoping… Without the political safety valve of the democratic process, I doubt the long-term success of such a regime.
On the current account deficit and the dollar:
It is easy to exaggerate the likelihood of a dollar collapse … I am far more inclined toward the more benign outcome.
On corporate governance:
Corporate governance had morphed into a kind of authoritarianism… The CEO of a profitable corporation today is given vast powers by the board of directors he essentially appoints.
“Questions for Greenspan That Need Better Answers”, by Bloomberg's Caroline Baum....
This publication is a general market commentary and does not constitute a research report. Any reference to a research report or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
1. In the book, as in your speeches and testimonies as Fed chairman, you hyper-focus on the federal budget deficit. In some ways you seem more concerned about fiscal policy than in minding your own store, even admitting you would have ``loved a chance to serve as Treasury secretary.'' Did you ever think of tendering your resignation and telling the president (you were Fed chair under four) you'd like to saddle up with the administration? Maybe director of the Office of Management and Budget would have been more your cup of tea.
2. You repeatedly refer to the need to ``unlearn'' clear writing when you became Fed chairman, to couch your comments in Fedspeak. You wear it as a badge of honour that no two news organizations could agree on what you had said. Why? Did someone tell you opacity was part of the job description? Or did you make it up as you went along? Is that efficient-markets stuff just something for the textbooks?
3. No doubt some of your fellow central bankers will be surprised to learn how little weight you give their role in reducing inflation in the last five to 10 years. Instead, you say certain forces -- globalization, innovation, the fall of the Berlin Wall -- came together ``serendipitously'' to depress inflation worldwide. If exogenous events dealt you such a fortuitous hand, why didn't you allow the price level to fall -- you know, the ``good'' kind of deflation, driven by technological innovation - -which is what would have happened under your preferred monetary anchor, the gold standard.
4. In that same vein, you write you were ``struck by how relatively easy it was to bring inflation down.'' When you assumed the Fed chairmanship in August 1987, the consumer price index was rising at an annual rate of 4.3 percent. In January 2006, the month you left, the CPI was rising 4 percent. You inherited a core CPI, which excludes food and energy, of 4.2 percent and cut it in half. That computes to a decline of 0.1 percentage point a year. If lowering inflation was such a chip shot, why don't you have more to show for your effort?
5. When you were Fed chairman, you wondered out loud about ``irrational exuberance'' in the stock market, even though Bob Rubin, whom you call one of ``foxhole buddies'' (the other was Larry Summers), said such comments were inappropriate for a government official.When Leslie Stahl asked you about your personal investments, you refused to comment on the stock market. Aren't you confusing your role as a public servant and private citizen?
6. You say it's improper for a president to comment on monetary policy, yet you actively tried to influence fiscal policy. You told Leslie Stahl you were an ``economic consultant'' to Bill Clinton, that you are ``very knowledgeable about lots of different subjects.'' And no one else is? You told Al Hunt you ``give advice because they ask me.'' Your successor, Ben Bernanke, has made a point of not offering pronouncements on fiscal policy. What part of ``no comment'' don't you understand?
7. Almost every interviewer has put you on the spot for your endorsement of George W. Bush's signature tax cut in early 2001 at a time when the outlook was for budget surpluses for the next 10 years. Given your justifiable distrust of politicians to save any surplus money in the public coffers, how could you buy into such a rosy scenario, especially with the burden of retiring baby boomers just over the horizon? When Stahl asked you if you had succumbed to political pressure, you said, no, ``they never spoke to me about this.'' They didn't have to. An old Washington hand like you, with finely honed political instincts, surely you knew which way the wind was blowing.
8. You have been accused of stoking a housing bubble by keeping interest rates too low for too long. In a passage in the book, you say you were aware of loosening of credit standards on subprime mortgage loans but thought ``the benefits of broadened home ownership are worth the risk.'' Are you suggesting that maximum home ownership is an appropriate mandate for the Fed, along with stable prices and maximum sustainable growth? You say next that ``protection of property rights ... requires a critical mass of owners to sustain political support.'' Should the government give away houses to ensure a critical mass of homeowners? Private property is a basic premise of the Constitution.
9. You write in the book that after you delivered your ``irrational exuberance'' speech at a December 1996 American Enterprise Institute dinner, you returned to your table and asked, ``What part of that do you think will make news?'' You seem to revel in your notoriety. How would you answer criticism that you were more interested in the cult of your own personality than in shoring up the credibility of the Fed?
10. Opining on the divisiveness in politics nowadays, you say the ideological divide between the Democratic and Republican parties has left ``a vast unintended center from which a viable, well-financed independent presidential candidate could conceivably emerge in 2008 or, if not then, in 2012.''
Candidate Greenspan, I presume?
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." - Alan Greenspan
thanks to Andrew de Courcy-Ireland, [Andrew_deCourcy-Ireland@canaccord.com]
Andy Nulman 
Please phone (514)934-0023 
Please e-mail us your thoughts. 
Alan Greenspan changes key Sep 1st 2005