Maestro
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CHAPTER 11
Most of the information in this chapter comes from the author’s interviews with 14 knowledgeable sources. Twelve were interviewed on numerous occasions on background; Robert Bennett was interviewed on the record on July 19, 2000, and Robert Parker was interviewed on the record on August 3, 2000.
The news of his departure: See David Wessel, “Blinder Will Leave Fed at End of Term Later This Month,” The Wall Street Journal, January 17, 1996, A4.
On January 19, 1996: See David Wessel, “Rohatyn Considered for No. 2 Fed Post,” The Wall Street Journal, January 19, 1996, A2.
at the January 31, 1996, FOMC meeting: For more information about the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 83rd Annual Report to Congress, May 28, 1997, 106–123.
The Washington Post ran a front-page story: See John M. Berry, “Rhetoric Aside, Spurring Economic Growth Unlikely,” The Washington Post, January 29, 1996, A1.
Paul R. Krugman weighed in: See Paul R. Krugman, “Stay on Their Backs,” The New York Times Magazine, February 4, 1996, 36.
“An example of what should not be done”: Clinton quoted from the White House, Office of the Press Secretary, “Remarks by the President at Presidential Gala,” February 15, 1996.
“Today I am pleased”: Clinton scene quoted from the White House, Office of the Press Secretary, “Remarks by the President in Announcement of Federal Reserve Vacancies,” February 22, 1996.
Tyson held a press conference: Tyson scene quoted from the White House, Office of the Press Secretary, “Press Briefing by Dr. Laura Tyson,” February 22, 1996.
“What are corporations doing”: See Richard Pucci, “Comments on the Comments,” I/B/E/S Inc., September 1995, 4–7.
During the FOMC’s two-day meeting: For further information about the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 83rd Annual Report to Congress, May 28, 1997, 140–151.
“Look at these numbers”: The Wall Street Journal would later report that nearly everybody in the room wanted to raise rates in August. See David Wessel, “In Setting Fed’s Policy, Chairman Bets Heavily on His Own Judgment; Greenspan Loves Statistics but Uses Them in Ways That Puzzle Even Friends—Some Forecasts Go Awry,” The Wall Street Journal, January 27, 1997, A1.
BusinessWeek magazine: The “Tug-of-War” story was particularly strong, citing a “division inside the Fed’s hallways” and saying that “a new showdown will occur on Sept. 24.” See Dean Foust, “Tug-of-War Inside the Fed,” BusinessWeek, September 24, 1996, 46; Dean Foust, “Political Hardball Inside the Fed: Using the Press, Regional Banks May Force Greenspan’s Hand,” BusinessWeek, September 30, 1996, 38.
As the FOMC gathered: For a description of the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 83rd Annual Report to Congress, May 28, 1997, 159–168.
He quoted from the Slifman and Corrado study: The Slifman and Corrado Study, called “Decomposition of Productivity and Unit Costs,” was published on November 18, 1996. At the bottom of that draft, in fine print, is a list of people to thank—which includes Greenspan. When Slifman and Corrado refined some of their data and republished it in May 1999 under the same title, they included a list of “other contributors to this report.” Buried in the middle of that list is Alan Greenspan.
the consumer price index was overstating inflation: That the CPI overstated inflation was widely accepted by 1996. The largest problem with the CPI was that it tracked the same goods over time—and, as a result, failed to capture dramatic improvements in existing products or consumer shifts to lower-price substitutes. Michael Boskin, former chairman of Bush’s Council of Economic Advisers, headed a Bush administration task force that explored this issue in the period 1989–90, then later headed another commission on the same subject in 1995. See John M. Berry, “Bush Seeks More Money for Economic Statistics,” The Washington Post, January 26, 1990, F3; Martin Crutsinger, “Economists Question Accuracy and Value of U.S. Statistics,” Associated Press, as it appeared in The Washington Post, July 5, 1990, D1; Daniel Patrick Moynihan, “The CPI: An Easy Fix . . . ,” The Washington Post, September 26, 1995, A19. The Bureau of Labor Statistics eventually decided to change the way they measured the CPI in March 1996, but many—including Greenspan—remained unconvinced.
“Fed Avoids Rate Hike”note-201: See John M. Berry, “Fed Avoids Rate Hike, Sensing Slower Growth,” The Washington Post, September 25, 1996, A1; David E. Sanger, “Federal Reserve Makes No Change in Interest Rates,” The New York Times, September 25, 1996, A1.
She walked next door: See also Jacob M. Schlesinger, “Change Agent: How Alan Greenspan Finally Came to Terms with the Stock Market,” The Wall Street Journal, May 8, 2000, A1.
The Washington Post had published: See John M. Berry, “U.S. Sails on Tranquil Economic Seas; Recessions No Longer Seem Inevitable,” The Washington Post, December 2, 1996, A1.
CHAPTER 12
Most of the information in this chapter comes from the author’s interviews with nine knowledgeable sources.
On February 26, he testified: Greenspan quoted from John M. Berry, “Greenspan Escalates Warning on Stock Risks,” The Washington Post, February 27, 1997.
“That’s not what I was intending to do”: Greenspan quoted from Jackie Calmes, “Greenspan Defends Remarks on Market,” The Wall Street Journal, March 5, 1997, A2.
At the FOMC meeting on Tuesday: For more information on the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 84th Annual Report to Congress, May 28, 1998, 114–123.
The Wall Street Journal said: See David Wessel, “Fed Lifts Key Short-Term Interest Rate Amid Speculation More Rises Are Likely,” The Wall Street Journal, March 26, 1997, A2.
The Washington Post said: See John M. Berry, “Fed Boost Benchmark Interest Rate; Inflation Risk Cited,” The Washington Post, March 26, 1997, A1.
Meyer had agreed to give a speech: For much of the information about Meyer’s speech on April 24, including the wire service headlines, see David Wessel, “When Fed Governor Talks, People Listen; But Do They Hear?—How Hard Mr. Meyer Tries Not to Move the Markets; Why He Failed Yesterday,” The Wall Street Journal, April 25, 1997, A1; see also “Fed’s Meyer Says Solid Growth Requires Pre-Emptive Stance,” Dow Jones Online News, April 24, 1997.
The next morning Meyer read: See David Wessel, “When Fed Governor Talks, People Listen; But Do They Hear?—How Hard Mr. Meyer Tries Not to Move the Markets; Why He Failed Yesterday,” The Wall Street Journal, April 25, 1997, A1.
“The Meyer Fed?”: See “The Meyer Fed?,” The Wall Street Journal (editorial), May 20, 1997, A18.
After a long discussion of the economy: For more information on the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 84th Annual Report to Congress, May 28, 1998, 123–132.
“We have as close to stable prices”: Greenspan quoted from John M. Berry, “Greenspan Expects Strong Economy Through 1998,” The Washington Post, July 23, 1997, A1.
On October 8: Greenspan quoted from Christopher Georges, “Greenspan Raises Prospect of Rate Rise,” The Wall Street Journal, October 9, 1997, A2; Clay Chandler, “Greenspan Warning on Economy, Stocks Again Roils Markets,” The Washington Post, October 9, 1997, A1.
This sent Rubin out: Rubin quoted from Adam Zagorin, “Greenspan and His Friends: How the Fed Chairman, Treasury Secretary Rubin and Their Crash Team Navigated a Scary Week,” Time, November 19, 1997, 46.
Greenspan understood that new technology: Greenspan’s views are taken in part from his testimony before the House Banking and Financial Services Committee. See U.S. Government Printing Office, Hearings Before the Committee on Banking and Financial Services, U.S. House of Representatives, “East Asian Economic Conditions—Part 2,” January 30, 1998, 209–221.
CHAPTER 13
Most of the information in this chapter comes from the author’s interviews with 15 knowledgeable sources.
On Friday, January 30, 1
998: Hearing scene quoted from U.S. Government Printing Office, Hearings Before the Committee on Banking and Financial Services, U.S. House of Representatives, “East Asian Economic Conditions—Part 2,” January 30, 1998, 10–67.
who as CEA chairman in 1974: See Stuart Auerbach, “Brokers Hit Worst, Ford Aide Tells Poor,” The Washington Post, September 20, 1974, A1; James Risen, “Greenspan: Supreme Survivor,” Los Angeles Times, May 30, 1991, A1.
In a rare television interview: Bush quoted from “Bush Pins the Blame for ’92 Election Loss on Alan Greenspan,” The Wall Street Journal (Politics and Policy), August 25, 1998, A16.
Speaking obliquely: Greenspan quoted from “Excerpts from Fed Chairman’s Speech,” The New York Times, September 5, 1998, C2.
Front-page news stories: See David E. Sanger, “Greenspan Hints That a Rate Cut Isn’t Unthinkable,” The New York Times, September 5, 1998, A1; John M. Berry, “Fed Chief Hints at Possible Rate Cut,” The Washington Post, September 5, 1998, A1.
As an example: See Michael Siconolfi, Anita Raghavan and Mitchell Pacelle, “All Bets Are Off: How the Salesmanship nd Brainpower Failed at Long-Term Capital,” The Wall Street Journal, November 16, 1998, A1.
Around the table: For a comprehensive description of LTCM’s unwinding, including a seating chart for the September 23 meeting at the Fed in New York, see Michael Siconolfi, Anita Raghavan and Mitchell Pacelle, “All Bets Are Off: How the Salesmanship and Brainpower Failed at Long-Term Capital,” The Wall Street Journal, November 16, 1998, A1.
On Tuesday, September 29: For more information on the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 85th Annual Report to Congress, May 1999, 174–184.
The session began: Hearing scene quoted from U.S. Government Printing Office, Hearing Before the Committee on Banking and Financial Services, U.S. House of Representatives, “Hedge Fund Operations,” October 1, 1998, 1–72.
On October 15: See Board of Governors of the Federal Reserve System, 85th Annual Report to Congress, May 1999, 184.
The bond market soared: For more information on the markets’ reaction to the September rate cut, and on the Fed’s rationale for cutting rates again in October, see David Wessel, “Credit Record: How the Fed Fumbled, and Then Recovered, in Making Policy Shift,” The Wall Street Journal, November 17, 1998, A1.
On Tuesday, November 17: For more information about the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 85th Annual Report to Congress, May 1999, 184–197.
CHAPTER 14
Most of the information in this chapter comes from the author’s interviews with seven knowledgeable sources.
On January 14, 1999: See Michael J. Prell, “Remarks at the Charlotte Economics Club,” January 14, 1999, available at www.federalreserve.gov/boarddocs/speeches/1999/19990114.htm.
articles praising the chairman: See Rob Norton, “In Greenspan We Trust,” Fortune, March 18, 1996, 38; Dean Foust, “Alan Greenspan’s Brave New World,” BusinessWeek, July 14, 1997, 44.
In early February 1999: See Joshua Cooper Ramo, “The Three Marketeers,” Time, February 15, 1999, 34.
On March 4: See “Who Needs Gold When We Have Greenspan,” The New York Times (editorial), May 4, 1999, A30.
At the May 18 FOMC meeting: For more information on the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 86th Annual Report to Congress, May 2000, 224–232.
“Fed Won’t Hike Rates”: See John M. Berry, “Fed Won’t Hike Rates—For Now,” The Washington Post, May 19, 1999, A1.
At the June 30 FOMC meeting: For more information on the FOMC’s discussion, see Board of Governors of the Federal Reserve System, 86th Annual Report to Congress, May 2000, 232–244.
“The Fed smiled”: See E. S. Browning, “ ‘Friendly’ Fed Move Lifts Indexes to New Highs,” The Wall Street Journal, July 1, 1999, C1.
In a commencement speech: Greenspan quoted from Pamela Ferdinand and Michael Grunwald, “At Two Commencements, Perspective Is the Reality,” The Washington Post, June 11, 1999, A3.
In a speech on August 27: See Louis Uchitelle, “Greenspan Ties Debate on Rates to the Markets,” The New York Times, August 28, 1999, A1.
CHAPTER 15
Most of the information in this chapter comes from the author’s interviews with four knowledgeable sources.
The White House press office: See “Greenspan Stopped Split Stories,” Washingtonian, February 2000, 10.
In the Oval Office: Reappointment scene quoted from Weekly Compilation of Presidential Documents 36, 1 (Monday, January 10, 2000), 13–16.
Index
A note about the index: The pages referenced in this index refer to the page numbers in the print edition. Clicking on a page number will take you to the ebook location that corresponds to the beginning of that page in the print edition. For a comprehensive list of locations of any word or phrase, use your reading system’s search function.
Adams, John Quincy, 158–59
Akerlof, George, 170
Allaire, Paul, 150
Allen, Woody, 89
Allison, Herbert, 205
Alwaleed bin Talal, Prince, 73
American Enterprise Institute, 179–80
American Savings & Loan Association, 36
Andrews, E. F. “Andy,” 60
Angell, Wayne:
and budget deal, 70
and ESF, 143
expired term of, 125
on Greenspan’s reappoinrment, 81
and interest rate decisions, 78–80, 86, 106, 107, 108, 112–13
arbitrage, defined, 245
arbitrage-type activities, 208
Arkla, 98
Asian economies, 188–92, 193, 194, 202
asymmetric directives, 49–50
downward, 50, 69, 75, 76–77, 81, 92–94, 207
enhanced consultation and, 77
public declaration of, 2 15, 216
telephone conferences and, 92, 106, 121, 211–12
upward, 50, 51, 59, 187, 198, 214–16
Baily Martin N., 221
Baker, Howard H, Jr.:
as chief of staff, 21
and Greenspan appointment, 21, 22, 23, 24
and market crash (1987), 39, 44, 45
and Rohatyn appointment, 161
Baker, James A, III, 15–21
and board members, 17–21, 51, 54
and Bush campaign, 51–54
and Fed chairmanship, 16, 18–21, 22, 24–25, 52
and market crash (1987), 46
and media, 52
and Reagan campaign, 16–17
as secretary of state, 63, 82
and Social Security, 22–23
as treasury secretary, 17, 18, 20, 50
Bankers Trust, 41
banking industry:
Fed as regulator of, 47, 72–74, 190–91
international regulation of, 194
Korean crisis and, 190–92
rescue of, 72–74, 195
Bank of New York, 41
Baumol, William J., 109
Baumol’s disease, 109–10
BBC (British Broadcasting Corporation), 61
Begala, Paul, 100
Bennett, Robert, 143–44, 162
Bentsen, Lloyd, as treasury secretary, 98–101, 110, 116, 117, 122, 139, 157, 224
Berry, John M., 180
Black, Robert, 81
Black Tuesday crash (1929), 37, 42
Blinder, Alan, 125–28
and interest rate decisions, 128, 130, 134–37, 144–46, 153
public statements by, 126–27, 131–33, 145–46
reappoinrment and, 154–55
successor to, 155, 164
Blinder, Madeline, 127–28, 154
Board of Governors, 17–19, 245
chairman of, 17, 158; see also
chairmanship; Greenspan, Alan; Volcker, Paul
consensus as goal of, 18, 19
discount rate changes and, 17, 28, 32, 52, 85, 86
public statements and, 184–85, 198–99, 214
terms of, 17
vice chairmanship of, 36, 126, 127, 137, 155, 164
Boehne, Edward G., 30, 50, 108, 186, 192, 210
bond, defined, 245
bond market:
confidence in, 79, 101, 202, 206
Fed trading in, 27–28, 38, 62, 246, 249
as hidden, 197–98, 200
inflation and, 102–3
interest rates and, 33, 70, 96, 122, 131, 136, 197, 209, 210, 212
investors as bank in, 197
junk bonds, 36, 65, 94
LTCM and, 200, 202, 203
public statements and, 146
Russian default and, 197–98, 200
stock market and, 198
Boskin, Michael J., 81–82
Bowles, Erskine, 150, 165
Boyer Award, 179
Bradlee, Ben, 181
Brady, Nicholas E, 81–82, 85, 99, 196
market crash (1987) and, 48
money supply and, 89
as treasury secretary, 71, 89–91, 95
Branden, Nathaniel, 56
Brinkley David, 181
Broaddus, J.Alfred, Jr., 187
Brookings Institution, 163
budget deficit:
Bush administration and, 69–71, 94
fiscal discipline and, 123
inflation and, 56, 62, 100, 102
inflation premium and, 95–96
interest rates and, 96, 99, 103, 109, 125
political system and, 106
taxes and, 97
Vietnam War and, 102
see also deficit reduction Buffett, Warren, 202–3, 204, 205
Bureau of Labor Statistics, 112, 177
Burns, Arthur E, 22, 56
Bush, George:
approval ratings of, 83
election campaigns of, 21, 51–54, 71, 85, 88
election defeats of, 94, 99, 160, 196
Greenspan and, 84–85, 87, 91, 97
media and, 91
Bush, George W., 144
Bush administration, 59, 85
Council of Economic Advisers, 81
Fed bashing by, 62–63