CHAPTER 15

The Cult of Greenspan

Excerpted from Greenspan: the Man Behind Money

 

By Justin Martin

Copyright 2000, Perseus Publishing

Question: How many central bankers does it take to screw in a lightbulb?

Answer: One. Greenspan holds the bulb and the world revolves around him.

Greenspan’s deft handling of the Asian Contagion turned him into a bonafide celebrity. Years in the future, social historians will look back on the heady days of economic prosperity that immediately followed the crisis as Greenspan’s defining moment. The Fed chairman was promoted to iconic status and joined the ranks of Charles Lindbergh, General Douglas MacArthur, and Madonna.

This was all somehow strangely fitting given the number of famous people he’d rubbed shoulders with in the course of a lifetime. Ayn Rand had showed an uncanny knack for mining the zeitgeist, always managing to find a huge popular audience for her work. Kissinger was a star during the 1970s, when complicated geopolitical issues occupied the national consciousness.

But it was economic issues that took center stage during the turn of the 21st Century. As a technology revolution swept the nation, millions of Americans jumped into the stock market to get a piece of the action, and Greenspan became a touchstone. Even if it was unclear exactly what the Fed did—or perhaps precisely because of that—he captured the popular imagination. Here was an enigmatic old man who seemed to hold the fate of the nation’s economy in his hands. As a consequence, Greenspan managed to achieve a level of acclaim never before bestowed on a Fed chairman, and probably never to be bestowed again.

Call it the cult of Greenspan.

In the wake of the famous “irrational exuberance” comment, his power to move markets became legendary. Regardless of his intent, the reality was that stocks bobbed and weaved on his every word.

Perceived positive comments on February 11, 1999, helped send the Nasdaq soaring to 2405.55, up 96.05 points, at the time its largest single-day gain ever. But what Greenspan giveth, he also taketh away. Two weeks later he suggested that the economy was “stretched in a number of directions” and that “something will give at one point or another.” The Dow dropped 145 to 9400. The Nasdaq fell 37 to 2339.

Sometimes, the mere fact that Greenspan said nothing of substance was heartening. His Congressional testimony of July 27, 199, was blessedly free of pithy observations, warnings, or surprises. On the news — or lack of news — the Nasdaq jumped 1 percent.

On at least one occasion, Greenspan actually assigned an aide to follow the markets in real-time during his testimony. That way if a particular speaking point seemed to be having a deleterious effect on stocks, he could change course mid-stream.

Greenspan’s powers of equivocation continues to inspire awe. “He is a genius for being able to blur the issues,” says Milton Friedman. “I listen to his testimony before Congress and I am rapt with admiration for his ability to take all that crap and turn back around and deliver sentences that sound like he’s saying something when he’s really not.”

Mentor Burns had been an exceptional obfuscator, but student Greenspan turned out to be the finest ever. Burns tended to drone on in a tone that was slightly nasal and dripping with high seriousness. By contrast, the winking, ironic quality of Greenspan’s style has proved winning with Congress and the public. He shows that he is in on the joke. As he said at one point, “I spend a substantial amount of my time endeavoring to fend off questions and worry terribly that I might end up being too clear.” On another occasion, he answered a Congressman’s query by saying, “I’m trying to think of a way to answer that question by putting more words into fewer ideas than I usually do.”

Greenspan got a big laugh. People ate it up.

CNBC turned into GNBC — all Greenspan, all the time. The cable network took to providing live coverage even of some of the Fed chairman’s minor testimony, with the tagline: “Greenspan Speaks.” It also introduced a wildly popular and widely imitated feature called the Briefcase Indicator.

The idea behind the Briefcase Indicator: on days when the FOMC meets, the thickness of Greenspan’s briefcase offers a clue as to the direction of interest rates. A thick briefcase means he’s been reading voluminously and doing plenty of pondering. A change in rates is probable. A thin briefcase denotes an unclouded mind on the part of the chairman — no rate change likely. According to CNBC, the indicator called interest-rate decisions correctly on 19 of its first 20 tries. Of course, most of the time the “decision” was simply to leave interest rates untouched.

On days when FOMC meetings are held, CNBC cameramen even took to staking out the path that Greenspan walks to the Eccles Building. Appropriate theme music would accompany his stroll. If he was looking cagey, the producers might cue up the theme from Mission Impossible. If he appeared confident, they’d play “Mr. Big Stuff.” Back in the studio, CNBC anchors such as Maria Bartiromo made the official call: thick or thin briefcase, rates changed or left alone.

Though obviously tongue-in-cheek, the indicator managed to carve out its own little niche in the monetary-policy guessing game. Was Greenspan aware of the indicator? Was he actually using CNBC to send signals to the markets? “He often walks down the street in full view of the cameras,” says CNBC producer Matt Quayle. “This is one of the most powerful men in the world. Why doesn’t he just get dropped off at the front door?”

The internet also began to offer a trove of Greenspananalia. Websites started to crop up, such as GetExuberant.com: Home of the Official Alan Greenspan Fan Club. Visitors can post messages, read a brief tutorial on monetary policy, or follow links to recent news stories on Greenspan.

Websites come and go with wild abandon.

During 1999, someone also put up a now-defunct site called the Greenspan Game. It featured a “Fedspeak generator” that created statements even more inscrutable than those uttered by the man himself. Using Greenspan’s actual July 1999 Humphrey-Hawkins testimony as a framework, the program randomly inserted choice nonsense phrases. It sliced and diced Greenspan’s speech to produce 40 different madcap iterations. Here, for example, is the program’s mutant version of Greenspan’s opening statement:

 Thank you for this opportunity to answer my critics, who claim I am making up every word of the Federal Reserve’s semiannual report on how I used to beat the living snot out of Bob Rubin at tetherball.”

Meanwhile, an artist named Phillip A. Boyd II tried selling limited edition Greenspan portraits over the web for $75 a pop. The portrait bore the inscription “Rational Exuberance.” Boyd — who has done portraits of Abraham Lincoln, Malcolm X, and Babe Ruth — decided it was simply the Fed chairman’s time.

Internet chatrooms also started to buzz with talk of Greenspan. On any given day, a search on deja news was likely to turn up hundreds of thousands of hits, particularly at financial chatrooms. 

Here’s a message posted August 25, 1999:

“I ‘talked’ to mama this morning. Of course, it was a ‘one sided’ conversation, but I talked to her, nevertheless. I don’t know why.

Maybe it’s because August 4th was the 1 year anniversary of her death. Maybe it’s because the 26th is my 13th anniversary, or because September 4th is my 42nd birthday. I don’t  know why.

Maybe just because.

All I know is I got up early on my day off, stood outside on the porch, looked at mama’s (and father’s) memorial garden (where their cremains were buried), looked to the sky, and talked.

I didn’t say anything special. Not by my standards. I discussed the economy (Alan Greenspan, rising interest rates) versus having purchased my home before the recent trends, work, my sister, and things in general….”

The phenomenon soon grew truly global — it is the worldwide web, after all.

Here’s a message posted August 10, 1999:

“DIMENTICAVO…. Greenspan farà di sicuro la COSA GIUSTA…onde ragion x cui…mettiamoci il cuore in pace!!!ps: domani esce il Q. report di CISCO SYSTEM ( se a qualcuno può interesssare….)”

That’s Italian.

Rough translation:

“FORGET ABOUT IT. … Greenspan will perform the PROPER ACTION …. We must have peace in our hearts!!!  P.S.: Tomorrow CISCO SYSTEMS issues its first quarter report (if anyone is interested….)”

Greenspan fever quickly moved from the sublime to the ridiculous.

For more than two decades, Lenny Gilleo had run a barber shop concession in the basement of the Eccles building. Over the years, he trimmed Burns’s abundant tresses and snipped away at Volcker’s spare locks. He got a charge out of handing out his custom business cards, which read: “Hairman of the Board. My monetary policy is greatly affected by your growth rate.”

But otherwise, nothing doing. He was barber to Fed chairmen — big deal. But when Greenspan followed in the tradition of Burns and Volcker by employing Gilleo as his barber, Gilleo became the subject of a profile in the Washington Post.

Then there’s the table flap. Since 1977, the FOMC has conducted its business around a 27-foot long table fashioned out of Honduran mahogany, with a center section made of black granite. It weighs two tons. Since becoming Fed chairman, Greenspan had always sat at the head of this table. But in November of 1998, attendees at one of the Fed’s periodic public meetings noticed that he had moved to a spot in the middle.

The hubbub began immediately. What did it mean? Was Greenspan sending a message about increased “collegiality” at the Fed? Turns out the move was for the sake of acoustics. “Given the speed of sound, the advice arrived too late and inadvertently we got behind the curve,” joked Greenspan, during a meeting of the Fed’s board of governors.

A&E Biography selected Greenspan as the “most fascinating person of 1999.” Filling in the top 10 beneath him were, among others, Cher, Tiger Woods, Ricky Martin, and Yugoslav strongman Slobodan Milosevic.

Greenspan also made a cameo on the Simpson’s, or at least a suitably-dour animated likeness of the Fed chairman appeared on the show. The plot line: Lisa has become president. Bart tries to high-five the Fed chairman, but Greenspan ignores him.

Greenspan, Greenspan, Greenspan — on TV, on the web, on everybody’s mind.

Late in 1999, Americans were treated to the spectacle of the leading presidential candidates for the 2000 election falling all over one another to see who could heap the highest praise on Greenspan.

“I am his biggest fan,” said Al Gore in a CNBC interview. “I think he’s doing a great job. I can’t think of anybody who can do a better job.”

“He has done a great job managing the monetary side of our economy,” said George W. Bush. “The best way to keep inflation in check is to appoint somebody who’s got a track record of doing that.”

But the prize went to John McCain. During a primary debate he gushed: “And by the way, I would not only reappoint Alan Greenspan; if he would happen to die, God forbid, I would do like they did in the movie ‘Weekend at Bernie’s.’ I would prop him up and put a pair of dark glasses on him.”

Clinton beat McCain to the punch. On January 4, 2000, Clinton nominated Greenspan to a fourth term as Fed chairman. Although the two had never managed to recapture the spark of that initial meeting in Little Rock, they were again on comfortable terms, at least. Granted, their conversations had grown less and less frequent over the years, but what was there to talk about? The economy was soaring.

Greenspan’s Senate confirmation hearing — a tense scene on previous occasions   — was more like a coronation this time around.  Phil Gramm, Republican Senator from Texas, sent the following valentine Greenspan’s way: “If you were forced to narrow down the credit for the golden age that we find ourselves living in, I think there are many people who would be due credit, and there are more who would claim credit. But of those who are in a position of authority, I think your name would have to be at the top of the list.”

Long a Greenspan fan, Gramm had attached a rider to a bill a few years back that raised the Fed chairman’s salary to $133,800. When Greenspan started in 1987, he was paid $89,600.

            *

By the dawn of the new millennium, it was nearly impossible to find anyone in America who wasn’t gaga over Greenspan.  Democrats and Republicans, Wall Street and Main Street, dogs and cats—all were high on the Fed chairman.

In fact, a survey of the cultural landscape revealed exactly two dissenting parties capable of summoning any real vinegar.

One was Steve Forbes. During a primary-race debate he made the following pronouncement: “We have a Federal Reserve that is starting to tighten up [and] raise interest rates because of a bogus economic theory that says that prosperity causes inflation. So unlike George [W.] Bush, I’m not sure I’m going to reappoint Alan Greenspan, if he’s addicted to that theory. It’s a destructive one. It has already done immense harm to agriculture in America. And if he continues in that course of action, it’s going to do real harm to the economy.”

Forbes would continue to flog this theme while stumping in Iowa — a clear echo of Williams Jennings Bryan’s populist rhetoric of more than a century before.

The other source of anti-Greenspan invective, though diffuse and deep underground, was unreconstructed Objectivists. Ayn Rand’s most fervent followers never forgave Greenspan for the heresy of heading up a central bank. Central banks are, after all, agents of big government that meddle in the economy.

Of course, Rand never lived to see Greenspan become a central banker. But she seemed pleased enough with his first foray into government, during the Ford Administration. He was one of the few people who she had not “excommunicated” from her movement by the time she died.

Leonard Peikoff took care of that. The man who had vied with Greenspan for Rand’s attention during the 1950s strongly denounced Greenspan on his talk show, heard on 10 stations across the country including KIEV in Los Angeles.

Fellow Objectivists were equally harsh.

“Ayn Rand must be turning in her grave at what Greenspan has become,” says Bert Ely, a prominent banking consultant and Rand follower. “To me, the guy is a hypocrite. Central banking is central planning. Here’s the great Objectivist, running this organization. Alan Greenspan is a real political prostitute.”

Ely even printed up a set of buttons with slogans such as “Who Needs the Fed?” and the sarcastic, “Happy Humphrey-Hawkins Day.” Like WIN buttons, they’re printed in noninflationary duo-tones, yellow and black.

“The story of Greenspan is the story of a gradual surrendering of principles,” says Richard Salsman, an economic consultant and Objectivist.  “The general view is the guy has sold out. Some people say he’s doing the best he can within a fairly ridiculous regime, buying time for us. I think he’s become a very political animal. At some point along the line he must have decided he’d rather be known than be right. He must have decided he preferred to be influential.

But so long as Greenspan steered clear of Steve Forbes and stray Objectivists, he could do no wrong. Within Washington social circles, Greenspan was invincible. The man who had made a splash with Barbara Walters during the Ford Administration reached the pinnacle of popularity.

“Greenspan is at the top of the ziggurat socially,” says Lloyd Grove, a gossip  columnist for the Washington Post. “If you’re talking dinner circuit, he’s somebody that everybody in Washington would love to have at their table.”

“He’s definitely A-list,” concurs Kevin Chaffee, social editor for the rival Washington Times. “Clearly, the president is always number one. But Greenspan’s social rank is elevated up into the stratosphere, more than any previous Fed chairman.”

Greenspan had the requisites, powerful friends and invitations to all the right parties.

Over the years, he and Andrea Mitchell had become close to such players as PBS news host Jim Lehrer and his wife, Kate; World Bank president Jim Wolfensohn and his wife, Elaine; and Katherine Graham, retired chairman of the Washington Post company and one of the doyennes of Washington society. Graham’s father, Eugene Meyer, was chairman of the Fed from 1930 to 1933.

Greenspan made an annual tradition of holding a March 6 birthday luncheon with three other people born on the same date — former CIA director William Webster, former House speaker Tom Foley, and Missouri Senator Kit Bond.

Another annual tradition: the White House Correspondent’s Dinner. Held each spring, it’s the event of the Washington social season. Various news agencies invite celebrities such as Barbra Streisand, Warren Beatty, and Sharon Stone. Typically, the attendees are treated to an appearance by the president.

Also on the Greenspan-Mitchell social circuit: Ben Bradlee and Sally Quinn’s New Year’s Eve party. Bradlee is former editor of the Post; Quinn is his wife and a D.C. social fixture. The party is held at the couple’s elegant Georgetown home. The guest list is relatively small — only about 100 — and it’s been the hottest ticket in town on December 31 going back many years. 

The Fed also throws its own party, a 4th of July bash. It’s a tradition started by Volcker. Greenspan and other Fed officials rub shoulders with various muckety-mucks in government and the media. The Eccles Building affords a great view of fireworks exploding over the Mall.