Alan Greenspan, former Fed chair who defined an era, dies

Alan Greenspan, one of the most consequential chairs of the Federal Reserve who transformed the central bank into a more market-friendly, talkative central bank and who himself became a pop-culture fixture due to his dispassionate, arcane public persona but who also missed the growing imbalances in the housing market that led to the worst financial collapse in a century, passed away on Monday from complications related to Parkinson's disease. He was 100.

Greenspan, who served as chair of the Federal Reserve from 1987 until 2006, was nominated or renominated by four presidents, making him the second longest-serving Fed chair in history, after William McChesney Martin. Over the course of his 18 years at the head of the U.S. central bank, Greenspan's Fed was marked by a trend of deregulation in the banking industry and economic growth ? as well as the "irrational exuberance" that culminated in the great financial crisis of 2007 to 2009.

Greenspan spoke in the technocratic language of economists, like other central bankers, but he spoke more publicly and more often, becoming the first central banker to be treated like a celebrity. His career was largely marked and bookended by soaring market manias and punishing crises. Only a few months into his chairmanship in 1987, the stock market suffered its worst one-day crash in history. From there it rose to the heights of the dot-com boom and housing bubble. The financial crisis of 2008 came after his retirement but was the result of economic conditions that built up during his stewardship.

"During his 18 years as Chairman, he guided the Federal Reserve through periods of significant economic expansion as well as periods of considerable stress," the Federal Reserve said in a statement on Monday morning. "Under his leadership, the Federal Reserve achieved a sustained era of price stability that supported economic growth and helped anchor the public's confidence in the institution."

"I was sorry to hear of Alan's passing," said Ben Bernanke, who succeeded Greenspan as Fed chairman. "He was a great central banker who helped lead his country through almost two decades of prosperity. I always found him generous with his time and insights. We are still learning from him, even if he is no longer with us."

Alan Greenspan was born in New York City in 1926 to Herbert and Rose Greenspan, a stock broker and furniture saleswoman, respectively. An only child, his parents divorced early in his childhood and he grew up in Washington Heights with his mother, while his father moved back to Brooklyn. He described his upbringing as "lower-middle class," with his mother working in furniture sales through the Great Depression to support the family.

Greenspan attended New York University, where he earned a bachelor's degree in economics in 1948 and a master's degree in 1950. Greenspan obtained a Ph.D. in economics from NYU in 1977.

He joined economic forecasting firm Townsend-Skinner & Associates in 1953, later becoming the primary owner of the firm ? thus renamed Townsend-Greenspan ? in 1958. He would remain at the firm for more than 30 years until its dissolution in 1987 upon Greenspan's nomination to chair the Federal Reserve. He also served on the corporate boards of a number of major companies, including JPMorgan Chase (JPM), Alcoa (AA) and Mobil Company.

Greenspan had been active in Republican politics before then ? he served as coordinator of domestic policy for Richard Nixon's presidential primary campaign in 1968, and served as chair of the White House Council of Economic Advisors from 1974 to 1977 under President Gerald Ford. Prior to his term on the Fed board, Greenspan had gained a reputation as an inflation hawk ? one willing to raise interest rates and swallow the resulting economic strains in order to keep inflation in line.

When Greenspan was tapped to lead the Fed, the central bank ? under the direction of his predecessor, Paul Volcker ? had spent the prior decade doing precisely that. The combination of low growth and high inflation, or stagflation, that came to define the 1970s was brought to heel only after Volcker undertook a prolonged era of dramatic interest rate hikes ? which peaked at over 19% in 1981. While the death of stagflation made Volcker a legend among central bankers in the long run, he and the Fed were deeply unpopular at the time among Wall Street bankers, many interest rate-sensitive industries, the public and the Reagan administration. Greenspan was tapped to replace Volcker and was sworn in as chair of the Fed in August 1987.

Greenspan's opportunity to change the central bank's monetary policy course came quickly. On October 19 ? less than two months after being sworn in ? a stock market rout that had begun the prior week turned into a crash, with the major stock indices losing nearly a quarter of their value in a day that came to be known as Black Monday. Greenspan responded the next day by cutting interest rates and encouraging banks to continue to lend to securities firms under regular terms, saying in a statement on October 20 that the central bank had "affirmed its readiness to serve as a source of liquidity to support the economic and financial system."

That response calmed markets and staved off fears of bank runs or any broader effect of the crash on the financial system ? Wall Street recovered all of the prior week's losses in two trading sessions. But the episode also sent a signal to the financial industry that the Greenspan Fed was willing to use its power to support markets in ways that they hadn't before.

Greenspan's views on monetary policy took a similar tack over his decades as Fed chair. His policy of easy money ? that is, low interest rates even in the presence of high economic growth ? came to be known as the Great Moderation. His assessment that an acceleration of productivity in the mid-1990s would enable the economy to stave off inflation without the Fed increasing interest rates helped build his persona as a "Maestro" ? a moniker cemented by the title of Bob Woodward's 2000 biography about the central banker ? at the helm of the economy.

"Somehow, dividing one questionable piece of data by another questionable piece of data often ? but not always ? produced insights into the economic outlook. Thus armed, he could dazzle and puzzle me, the rest of the staff, his colleagues on the FOMC, Congress, and the markets," wrote former Fed Vice Chair Don Kohn in an essay published by the Brookings Institute on Monday. "He often started by spotting and trying to figure out anomalies ? developments that didn't seem explainable with conventional wisdom. His call, before anyone else, that productivity growth had picked up in the mid-1990s was a good example of this."

In the summer of 1998, a hedge fund called Long Term Capital Management came under intense pressure due to leveraged bets it had made across markets that came undone after Russia devalued its currency. The fund, created in 1994 by former Salomon Brothers Vice Chairman John Meriwether, was sufficiently important enough that its collapse threatened the broader markets. The Greenspan Fed orchestrated a private-creditor bailout that injected billions into the firm, allowing for an orderly wind-down of its positions. While the Fed itself had not put up any money, the incident further impressed an image on the market of a central bank that would come to its rescue when needed. This assumption came to be called the "Greenspan Put."

With his soft features and scholarly, abstruse language, he took on a popular public persona of a market wizard. In 1989, the cable-news channel CNBC began broadcasting and Greenspan became a popular character on the network. Anchors would jokingly analyze the size of the briefcase he would carry into meetings, trying to discern whether a larger or smaller briefcase augured a certain policy change. A famous New Yorker cartoon played on the imperviousness of Greenspan's popular congressional testimonies, combining Lewis Carroll's poem "Jabberwocky" with economics: "All mimsy were the borogoves, and the mome raths outgrabe fifty basis points."

In response to the popping of the dot-com bubble in 2000, Greenspan lowered interest rates sharply, ultimately cutting the fed funds rate in 2003 to a then record-low of 1%, where it remained for more than a year, and after then gradually raised again. The move worked more or less as planned: Market activity started accelerating as low interest rates encouraged people to take on credit, which they then used to invest in the stock market and in housing. Home prices during this time rose sharply, doubling in only a couple of years.

As interest rates spurred more investment, certain changes in home mortgage underwriting allowed an unprecedented degree of leverage to accumulate in the home mortgage market ? vulnerabilities that were masked to a large degree by the expansion of the institutional investment market for mortgage-backed securities. Those pressures built up steadily through Greenspan's tenure, which came to an end in January 2006 after his second term as a Fed governor came to a close (though he still had two years left in his term as Fed chair). By rule, a Fed governor serving an unexpired term can be renominated for a single 14-year term, though in practice most resign before that term is expired. Greenspan's initial term as governor expired in 1992, when he was renominated; he is the last Fed governor to serve their entire 14-year term.

Soon after he left the central bank, the economy began to show signs of trouble. The housing market began slowing down in 2006, leading mortgage rates to rise and valuations to plateau and then decline. That withdrew some of the speculative appeal from the housing market, which in turn resulted in higher rates of default among some of the riskiest loans. Blame for the resulting disintegration of the mortgage market ? and, by extension, the global economy ? was to a large extent laid at Greenspan's feet.

Greenspan, for his part, acknowledged the downsides of his deregulatory efforts, saying that he had overestimated the extent to which market actors would be able to effectively police themselves.

"I made a mistake in presuming that the self-interest of organizations ? specifically banks and others ? were such that they were best-capable of protecting their own shareholders and equity in the firms," Greenspan told a House Oversight Committee hearing in October 2008. "The problem here is that, something that looked to be a very solid edifice ? and, indeed, a critical pillar to market competition and free markets ? did break down. That ? shocked me, and I still do not fully understand why it happened."

Greenspan kept a low public profile in the 20 years after he retired from the Fed, making only occasional public appearances and statements. Greenspan had, however, pushed back against certain initiatives put forward by the Trump administration in recent years, having joined his fellow former Fed chairs in a joint statement against an effort to eliminate the Office of Financial Research last year. Greenspan also joined his former Fed chair colleagues in condemning a Justice Department probe into then-chair Jerome Powell, saying the inquiry threatened the independence of the U.S. central bank.

Speaking in an interview with Bloomberg TV in 2020, Greenspan said he thought he brought some new ways of thinking to the Fed, and was sure that he had had a significant effect on the Fed and the economy, for good and ill.

"I brought economic analysis that was different from what had been, historically," Greenspan said. "You can't be there for almost 19 years without having an awful lot of effect. I'm proud of what I did. I'm acutely aware of the mistakes that I made. But I say, 'Could I have done otherwise?' And I say, 'No.'"