Alan Greenspan served as chairman of the Board of Governors of the Federal Reserve System, the most powerful financial position in the world, for eighteen and a half years, from early August 1987 through the end of January 2006. The second-longest-serving Fed chairman, his tenure largely coincided with a period sometimes called the “great moderation,” when economic growth was relatively steady, inflation low, recessions short and mild, and serious crises defused without debilitating downturns.
Under Greenspan’s leadership the Fed had an important and well-publicized part in containing threats to the financial system and economy such as the stock market crash of 1987, the junk bond collapse a few years later, the Asian crisis of 1997 with the deep fall in the value of Asian currencies, Russia’s default in 1998, and the bursting of the tech-stock bubble at the beginning of the new millennium. Although it may have received more credit than it was due, the Fed’s successes earned Greenspan widespread adulation, including the Financial Times anointing him “guardian angel of the financial markets” and Time saying he was chairman of “the Committee to Save the World.”
But despite—or because of—his achievements, Greenspan and the economy were eventually brought down by his continued failure to contain financial bubbles, sharp rises in market prices that were not reflected in underlying values. That a sustained period of stability and success in limiting potential dangers would engender complacency and hubris among both policymakers and investors is hardly surprising. Even so, Greenspan’s overconfidence is deeply troubling, for he, like the economist Hyman Minsky, was well aware of the dangers posed by financial bubbles that develop during periods of great stability.1 Sebastian Mallaby’s new biography, The Man Who Knew, ultimately aims to assess how seriously this one great failure undermines Greenspan’s legacy.
Now ninety, Greenspan grew up in Washington Heights, a largely immigrant neighborhood in northern Manhattan where he lived with his mother and her parents in their small apartment. He attended George Washington High School, two years behind Henry Kissinger.
Greenspan was uninterested in college. Musically talented, after graduating high school in 1943 he enrolled at Juilliard to study the saxophone and clarinet but lasted less than a year. Because a spot on one of his lungs exempted him from military service, he was able to tour for a year with Henry Jerome’s dance band before enrolling at the NYU School of Commerce, Accounts, and Finance. At NYU he was taught by Geoffrey Moore, a researcher associated with the National Bureau of Economic Research, an…
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