Cut Down to Size. - Review - book review

Chief Executive, The, Feb, 2001 by Charles W. Kadlec

After reading Greenspan: The Man Behind Money, you're likely to have a more jaundiced view of Federal Reserve Chairman Alan Greenspan's current mythical stature. As author Justin Martin (per full disclosure: Martin is a CE contributor) points out, Greenspan had the worst track record for forecasting inflation in the early 1980s among the eight leading economic consultants tracked by the Federal Reserve. But, in 1987, Greenspan was appointed chairman of the Fed and went on to make himself indispensable even as he uses the same flawed approach to navigate monetary policy in and out of a series of missteps and crises for the next 13 years. This paradox is the essential character of the man, who Martin seeks to revere, but in the end nearly demolishes in this thorough biography.

You'll find no overriding theme for Greenspan's life, and little insight into the drive and ambition that propelled this man from his modest beginnings in the Washington Heights neighborhood of New York City to the top of the "A" list in Washington D.C. social circles. Rather, Martin takes a "fly on the wall" approach, giving the reader a somewhat detached chronicle of Greenspan's life that's packed with detail. We learn, for example, that Greenspan would show off his intelligence as a young child by adding up three digit numbers in his head; that when he came of age, he refused to be bar-mitzvahed; and that his first date with Andrea Mitchell, whom he married in 1997, was in 1984 in New York City where they had dinner at the French restaurant Le Perigord.

We also learn that Greenspan's first love was music; that he studied clarinet at the prestigious Juilliard School of music in New York; and that he performed with a jazz band during the 1940S. He was also among the inner circle in Ayn Rand's "collective" where he was active from 1953 to 1968. But he found his calling when he returned to school at New York University and began to study economics. After graduation, he joined the Conference Board and immersed himself in the data of the post World War II industrial economy.

Martin says that as late as the 1960s, there was no evidence of Greenspan's future success. Yet his reporting shows a man that combined a keen intelligence with a drive to be successful. At the age of 27, he dazzled William Townsend, who was the proprietor of one of the few economic consulting firms on Wall Street. Townsend not only made Greenspan his partner, but added his name to a new division of the firm that would cover the industrial economy for some of the biggest names in the Fortune 500. By the end of the 19605, Greenspan was a millionaire and owned Townsend-Greenspan outright.

Martin's detached reporting of events comes close to showing that the plaudits given Greenspan are misplaced. Again and again, we learn of Greenspan's mistakes and role in creating the very crises he would later be applauded for resolving. For example, Greenspan's mythical stature can be traced to his successful response to the stock market crash of 1987 when the Dow industrials fell 22 percent in a single day, equivalent to a 2,200 point decline in today's market.

But Greenspan's fingerprints are all over the crisis. He was confirmed as Fed chairman on August 11, 1987. Twenty-four days later, the Fed began raising interest rates because Greenspan feared the economy was in danger of "overheating." In a vote of no confidence, long-term interest rates went up, rising to more than 10 percent for the first time in more than two years. When combined with then-Treasury Secretary Jim Baker's threat to devalue the dollar against the German mark, the stock market plummeted on Monday, October 19, 1987. The next day, Greenspan did a complete about-face, and began to aggressively lower the Fed Fund's rate and provide liquidity to the U.S. banking system and economy. The stock market stabilized, the economy continued to grow, disaster was averted, and Greenspan became a hero.

As a reader, you're left with the task of assembling your own picture of Greenspan. At first, I expected the author to provide the broad-brush strokes or some overriding thesis into which the picture of Greenspan could be fit. But after finishing the book, I realized that Martin had provided a comprehensive look at one of the world's most powerful men. In so doing, he shows that Greenspan is more a man than some mythical and infallible figure that many would have him be.

Charles W. Kadlec is managing director of New York City-based J&W Seligman & Co.