The God, Greenspan, is Another Liar; Who'd Have Guessed??

Alan Greenspan’s new book draws on extensive public records, transcripts, data, others’ books and accounts, interviews (many on background) he has previously given, interviews he has conducted with his contemporaries, and his personal notes and recollections. The resulting story is sweeping and fact-filled. Still, there are a few points where his assertions differ from the historical record or with his public statements at the time, though they do not change the overall story. (See related article.)

For example, the former Fed chairman writes that he told President Gerald Ford that “recessions are like hurricanes — they range from ordinary to catastrophic.” He was relieved when the recession of 1974-75 turned out to be “the milder kind of storm.” But in fact, it was the most severe recession of the post-World War II period, according to the National Bureau of Economic Research, the official scorekeeper.

He recalls writing in a campaign speech for President Ronald Reagan that the 1980 recession had been “one of the major economic contractions in the last fifty years.” In fact, the NBER later determined it was the mildest. Mr. Greenspan points out in a subsequent interview that the point of his story is to show how Reagan went on to exaggerate what his speechwriters had said by referring to the “Carter depression,” despite their efforts to correct him.

Mr. Greenspan also describes the risks he was taking by moving to raise rates shortly after taking office in August, 1987 because the Fed “hadn’t raised interest rates for three years… The risk in clamping down during a stock-market surge is especially acute- it can pop the bubble of investor confidence.” In fact, Mr. Greenspan’s predecessor, Paul Volcker, had begun tightening monetary policy the prior fall, raising the federal funds rate a full percentage point, which in turn drove Treasury bond yields up over a point. The combined Volcker-Greenspan tightening undermined stock valuations, precipitating that fall’s crash.

It is true that the largely symbolic discount rate hadn’t risen in more than three years; Mr. Greenspan boosted it on Sept. 4. Mr. Greenspan, in the interview, notes at the time the discount rate mattered more than today because changes in the federal funds rate weren’t announced.

Mr. Greenspan, often criticized for not preventing the 1990 bull market from becoming a bubble, says he attempted to do just that in early 1997. He writes that he told the Federal Open Market Committee in February that “some sort of preemptive move” was needed to rein in the stock market. But an official transcript of that meeting clearly shows Mr. Greenspan was recommending a preemptive move against inflation, not stocks. In his book he quotes himself as saying, “What we are trying to avoid is bubbles that break,” but in fact he said that at the next meeting, in March, and the context suggests he was arguing against, rather than for, raising rates to damp stocks.

In the interview, Mr. Greenspan says regardless of the motivation for the Fed’s rate increase then, the fact that stocks soared even higher afterwards only proves his larger point that incremental rate increases can’t defuse a bubble.

He writes that when the Fed cut rates to 1%, it knew a possible risk was “we might foster a bubble.” At least one former colleague confirmed hearing Mr. Greenspan express such concerns. But publicly Mr. Greenspan dismissed such a possibility. “My own sense is we don’t have to worry much about the emergence of bubbles for a while because it takes a number of years for the trauma of the collapse [of the last bubble] to wear off,” he told an academic conference in early 2004.

One less serious discrepancy involves CNBC’s whimsical exercise of filming Mr. Greenspan arriving at his office on the mornings of FOMC meetings, then informing viewers a fat briefcase meant a rate hike was coming and a thin one meant the opposite. Mr. Greenspan says in fact the thickness of his briefcase “was solely a function of whether I had packed my lunch.” But Greenspan’s wife Andrea Mitchell, in her own autobiography, gives a different explanation: “I had bought him two briefcases for Christmas, and if he was carrying a lot of books, he took one, and not the other.”

In the interview, Mr. Greenspan defers to his wife’s account.

At the end of his book Mr. Greenspan writes, “There are errors in this book. I do not know where they are. If I did, they wouldn’t be there. But with two hundred thousand words, my probabilistic mind tells me some are wrong. My apologies in advance.”

Link.