Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (57 page)

E
Earnings growth:
analysts’ predictions of, 199–200 stock prices vs., 175, 177–178, 194, 216
Eccles, Marriner, 20
Eckstein, Otto, 42, 60
Econometrics, 17, 40
Economic forecasts (in general), 10, 43
in 1995, 133
by Greenspan, 3, 6, 13, 16–17, 25, 43, 54–55, 97–98, 119
(
See also
Stock market analysts)
Economic growth:
and recovery from 1990s
recession, 127
and types of inflation, 166
Economic power, struggle
for, 364
Economic stimulation, through monetary policy, 121
Economics, 11–12, 96
“New Economics,” 26–27, 39, 121, 350
supply-side, 68–69
Economist,
195, 286, 299
Education, verbal inflation in, 63–64
Efficient market hypothesis, 26, 81, 81
n
.37, 112, 187, 318
Ely, Bert, 138
Employment Act (1946), 23
Enron Corporation, 183,
247–248, 284
Ertergun, Mica, 75
Ertegun, Ahmet, 75
E*TRADE, 212
Eveillard, Jean-Marie, 140
Excite@Home, 232
Exxon, 112

F
Faber, Marc, 38–39
Fannie Mae Corporation, 266–272,

275, 279, 309, 310
Fatbrain.com, 174
FDIC (Federal Deposit and Insurance

Commission), 78–79, 294
Fed funds rate, 368
and 1987 stock market crash, 113 in 1993, 162
in 1994, 128–130
in 1995, 136–137, 139–141,

160, 162
in 1996, 160
in 1997, 161, 162
in 1998, 187–189, 192
in 1999, 208
in 2000, 225
in 2001, 238, 239, 245, 246, 249,

258, 259
in 2002, 258–260
in 2003, 287
in 2004, 293
in 2007 and 2008, 338
and global crisis, 338
over the past two decades, 359 and recession of early 1990s, 122,

123, 125
Federal budget deficit, 77, 84,
113, 126
Federal Deposit and Insurance Commission (FDIC), 78–79, 294 Federal Home Loan Bank (FHLB),
86–87, 91
Federal Housing Authority (FHA),
272–273
Federal (Reserve) Open Market Committee (FOMC), 40, 344 and 1990s stock market bubble,
161–162, 170–172, 174–178,
192–194, 196, 200, 205–206,
212, 225, 285
1995 decisions of, 136–143
and 1998 rate cuts, 187–189 and 2000–2001 economic
slowdown, 231–234,
238–245, 249
composition of, 367
and consumer debt‘, 251–257 Greenspan’s control of, 137
and LTCM failure, 184–186
and margin requirements, 220 and productivity claims, 157–160 rate changes by, 368
and recession of early 1990s, 122,
123, 128–130
and subprime market of 1990s, 166 Y2K discussions in, 210–211 Federal Reserve Act (1913), 367 Federal Reserve Board:
and 1987 stock market crash, 112 Burns as chairman of, 13,
40, 66
n
.25
chairmen of, 362
and changes in CPI, 50
diminished influence of, 104 dissolution of, 359
Eccles, as chairman of, 20
economic growth mandate for, 23–24
and “the Great Impoverishment,” 358–359
Greenspan as chairman of,
104–107
Greenspan’s control of, 137–139 Greenspan’s early views of, 14, 28, 66
n
.25
Greenspan’s nomination hearing for, 95–102
and inflation of 1970s, 48–49 and inflation of late 1960s, 39–40 interest rates set by, 66 (
See also
Fed funds rate)
and margin requirements (stock market), 104, 105, 161, 175, 219–220, 223, 286
Martin, as chairman of, 20, 40 McCabe, as chairman of, 20
n
.5 Miller, as chairman of, 66
n
.25 at mid-century, 20–22
and monetary base, 134, 216, 248 and money supply, 4, 351, 352, 362 Patman’s threats against, 65
power and prestige of, 115–116 and recession of early 1990s, 122–126, 128–132
Volcker as chairman of, 66, 82, 95 and Wall street collapse of 2008, 345 Federal Reserve System, 224, 367–368 Feldstein, Martin, 239
FHA (Federal Housing Authority), 272–273
FHA mortgages, 273, 277
FHLB (
see
Federal Home Loan Bank) Fidelity Investments, 130
15 Central Park West, 356–357 Financial activities:
in the 1980s, 71–72
and commercial bank bailouts, 78–79
during conglomerate years, 33–36
innovation in, 124
junk bonds, 80–81
leveraged buyouts, 80
profits from, 3
Financial concentration, in banking industry, 100–101
Financial derivatives, description of, 109–112, 130–131, 276,
313–314
Financial institutions, Fed bailouts of, 115
The Financial Services
Modernization Act (
see
GrammLeach-Bliley Act (1999))
Financial system:
in the 1980s, 7
1994 deleveraging of, 128–129 1995 inflation of, 136–137
Proxmire’s fears for, 6
Financial Times,
192, 217, 242, 244,
313, 322, 328, 332, 345, 347 First Alliance Corporation, 274 Fixed-rate mortgages, 292
Fleet Financial, 130
FLEX-ARM mortgages, 289
FOMC (
see
Federal (Reserve) Open Market Committee)
Forbes, Malcolm, 74
Ford, Gerald, 5, 47, 52–54, 69, 70 Ford Motor Company, 51, 246 Foreign buying:
dollar supported by, 308–310 of mortgagebacked securities, 272
Fortune
magazine, 3, 4, 13, 23, 24,
29, 34, 37, 51, 144, 191, 334,
349, 351
Frank, Barney, 268
Freddie Mac Corporation,
266–269, 272, 279, 309,
310, 347
n
.48
Freemarket economics, 15
Friedman, Milton, 21, 37, 42, 68,
288–289, 299, 354
Fritts, Steve, 294
FTSE (Financial Times Stock Exchange), 246
Fuld, Richard “Dick,” 274, 354 Futures Industry Association, 189–190

G
Galbraith, James K., 327
Galbraith, John Kenneth, 66
n.25,
361 Garment, Leonard, 31–32
Gates Commission, 36, 37
GDP (
see
Gross domestic product) Geithner, Timothy, 79, 277, 361 General Electric Corporation, 183,

364–365, 306
General Motors Corporation, 51,
112, 123, 127, 246
General Motors Acceptance
Corporation, 306
GeoCities, 174
George Washington High School, 10 German central bank (Bundesbank),
49, 308–309, 351
Getz, Stan, 10
Glassman, James K., 198, 207, 243,
284–285
Glass-Steagall Act (1933), 101, 102,
275–276
Glenn, John, 85
Global Crossing, 248
“Global savings glut,” 310
TheGlobe.com, 191–192
Goebbels, Joseph, 218
n
.11
“Gold and Economic Freedom” (Alan Greenspan), 28–29, 45–46, 47,
115, 205, 286, 352, 362
Gold prices, 41, 66
Gold standard, 1, 5, 21–22, 27, 28–29,
38, 41, 47, 62, 115, 124, 305–306,
362–363,
“gold exchange standard” (
see also
Bretton Woods), 22, 38, 41, 47,
49, 305–306, 362
n
.5
Goldberger, Paul, 357
Goldman Sachs, ix, 96, 174, 232, 272,
276, 283, 310, 321, 322, 347
n
.48, 354, 356
Gone with the Wind
(Margaret
Mitchell), 315
González, Henry, 115
Gordon, Robert J., 230
Gore, Al, 323
Government agency securities, 309–310
Gramlich, Edward “‘Ned,” 178, 188, 259–260
Gramm, Phil, 163, 217, 245, 322 GrammLeach-Bliley Act (1999), 275–277
Grant, Cary, 47, 57
Grant, James, 118, 125, 195, 314 Gray, Edwin, 91–93
Great Depression:
Greenspan’s analysis of,
28–29, 205
and money supply, 352
“The Great Impoverishment,” 358–359
Greenspan, Alan:
and 1987 stock market crash, 103–104, 112–114
and 1990s stock market bubble, 160–164, 170–178, 191–210, 219–225, 285–287
and 1990s subprime market, 164–166
and 1995 funds rate cuts,
139–141
and 1998 rate cuts, 187–189 and 2000–2001 economic
slowdown, 224–225, 237–249 2007–2008 speaking tour of, 341–344
and analysts, consistent-bias theorem, 197, 199, 201
and analysts, upward bias of forecasts, 202, 203, 209,
232, 284
and (Wall Street) analysts, 29, 175,
177–178, 193, 194, 195, 196, 198,
199, 200, 201
n
.35, 203, 204, 209,
218, 231
n
.16, 232, 233, 235, 239,
243, 244, 284
and asset inflation (vis-à-vis price inflation), 4, 16, 25, 28, 65, 106,
170, 171, 175, 176–177
awarded, American Hero of
2007, 329
awarded, Department of Defense Medal for Distinguished Public Service, 297
awarded, Enron Prize for
Distinguished Service, 248,
284, 297
awarded, Knight Commander of the British Empire, 297
awarded,
Order national de la Legion d’honneur
, 297
awarded, Presidential Medal of Freedom 297
after retirement, 301–304
Americans’ feelings about, 104,
144, 164, 195, 203, 245, 243,
337–338
on asset inflation, 359
autobiography of, 154, 187, 303,
337–341,
and bubbles, states he (and Federal Reserve) has and can pop
bubbles, 128–129, 139–140, 161 and bubbles, states Federal Reserve cannot pop bubbles, 192–195,
203–205, 225, 228, 261, 285–286 on bubbles, 192, 203–204, 285,
349–350
campaign for Fed chairmanship,
82–83
debt, refers to as “wealth,” 2, 99,
107, 258, 260, 290
during Carter presidency, 60–67 character and personality of, 3, 14,
15, 27, 193, 211–213
and consumer debt, 254, 258, 261 and corporate management earnings bias, 235
control of FOMC/Federal Reserve by, 137–139
on Council of Economic Advisers, 5, 47, 50, 52–57
on credit default swaps, 315–316 and derivatives, 102–105, 110, 113, 128, 130–131, 182, 189–190, 206, 276, 312, 314, 343, 346
dissolution of Townsend
Greenspan, 102
early life of, 2, 9–10
economic forecasts by, 3, 6, 13, 16–17, 25, 43, 54–55, 97–98, 119 education of, 3, 10–13, 59–60 and presidential election of 1980, 67–70
as Fed chairman, 6–7, 104–107 Fed nomination hearing for, 95–102
and financial institution
bailouts, 115
“Gold and Economic Freedom,” 28–29, 205, 286, 352, (see additional pages under “Gold and Economic Freedom”) on gold standard, 362–363
and housing market, 254,
259–263
image presented by, 2, 52–53, 60, 61
infamous speeches of, 284–286, 289–299
on inflation, 4, 5, 45–46, 48
on investment, 350–352
legacy of, 365
and Lincoln Savings and Loan, 6–7, 85–93
on liquidity boom, 331
and LTCM failure, 181–187, 189 marriages of, 13, 57
and Mexico bailout, 135–136 Greenspan, Alan: (
Cont.
)
and models, 17, 175, 176, 177,
189, 206, 234, 240, 241–242,
260, 270, 285, 297, 304, 344,
345, 347, 348
and mortgage market, 266–269,
275–278, 280
on National Commission on Social Security Reform, 83–84
and New York City, 2, 5, 9, 22,
51–52, 57, 73–76, 353–354 during Nixon administration, 32,
36–37
and Objectivism, 14–15, 27, 32 open-mouth policy of, 227–235 at Paulson & Co., 345
peer reviews of, 38–39
political influences on, 115–116 political involvement of, 5, 31–32 on possible recession in 2007,
327–329
pre-government career of, 3, 13,
16–17, 33, 42
on price inflation, 351
and productivity, 145–146,
151–155, 157–160, 166–167,
171–173, 194, 218, 223–224,
225, 229, 231, 235, 241, 242,
249, 258
as public figure, 3, 5, 6, 24–25,
42, 52–53, 55–57, 72, 74–76,
227–228, 236, 297, 354
during Reagan presidency, 73 reappointment of, 122–123,
142–144, 216–217
and recession of early 1990s,
117–119, 121–123, 127–131 retirement of, 299–300
self-justification by, 340–348 on shorting the dollar,
316, 317
success of, 1, 56, 60, 61, 83,
118–119, 144, 195, 196, 243,
297, 299–300
as superstar in early 2000, 213–216, 222–224
“Technology and the Economy” speech, 218
Volcker supported by, 82
and Y2K, 210–211, 215
Greenspan, Herbert, 9–10
Greenspan, Rose, 9
Greenspan Doctrine, 106, 193–204, 298, 354
“The Greenspan Fed,” 137–139 Greenspan O’Neil Associates, 98 “Greenspan put,” 79, 106, 189, 249 Greenwich, Connecticut,
323–324, 357
Greif, Lloyd, 319
Gross domestic product (GDP), 234–235
in 1999, 230
in 2006, 325
debt required to produce, 310 in early 2000s, 291
and housing prices, 261
infatuation with growth of, 320 Grove, Andy, 242, 243
Grubman, Jack, 233, 244
Gulf Broadcast Company, 88
Gulf Times
(Qatar), 347
Guynn, Jack, 261

H
Habibie, B. J., 172
Hadfield, Tom, 221–222
Half.com, 217
Halfway, Oregon, 217
Harvard Business School, 81, 222 Harvard University, 12, 24,

26, 143
Harvard Corporation, 323
Hassett, Kevin A., 198, 207, 243,

284–285
Hatzius, Jan, 283–284
HCA (Hospital Corporation of

America), 317
Hedge funds, ix, 4, 125, 130, 181–182,
185, 187, 189, 271, 272, 301, 303, 305, 313, 315, 317, 319, 321, 322, 323–324, 332, 334, 345

in 2006, 313, 321–324
average pay in, 323
lack of regulation of, 187
(See also specific companies)

Heller, Walter, 26, 39, 42, 61
Hendrix, Justin, 222
Henry Jerome and His Orchestra, 10 Hewlett-Packard, 207
Heym, Gregory, 356
Hickey, Fred, 206–207
HighTech Strategist,
206–207
Hillsborough Holdings

Corporation, 117
A History of Interest Rates
, 359
Hoenig, Thomas, 192
Home equity loans, 106, 260–262,

289, 290
Hormats, Robert, 96
Hospital Corporation of America

(HCA), 317

House prices, 298
from 1997 to 2002, 289
in 1970s, 63
in 2004–2005, 289–294
in 2006, 325
and appraisal fraud, 280
bubble in, 333
and calculation of CPI, 150–151 in California, 293
and consumption, 310
and home equity loans, 290 and household wealth, 260
in New York City, 356–357

House sizes, 22, 51, 358
Household income:
in 1973, 36
in 2001, 266
in 2007, 36
in early 1990s, 127
Household wealth, 258, 260, 265 Housing market, 63, 250–263, 296–297
in 2004–2005, 293–295
in Arizona, 357–358
bubble in, 245, 261, 313, 333, 343
Greenspan’s elevation of, 106–107
Greenspan’s prediction about, 316
in New York City, 356–357
(
See also
Mortgages)
HSBC Mortgage Services, 328 Humana Incorporated, 80
Huntington, R. W., Jr., 221

I

I/B/E/S (
see
Institutional Broker’s

Estimate System)
IBM (International Business
Corporation), 207
Ideal Leasing, 35
Immelt, Jeffrey, 306
Implode-O-Meter Web site, 328, 334
Independent
(London), 328
Inflation, 1–2
in 1950s, 4
in 1960s, 39
in 1970s, 5, 41, 43–46, 48–51,
62–63
asset, 321, 343, 359
of asset prices in late 1990s, 170 Boskin Commission study of,
146–149
and calculation of CPI,
147–152, 155
in credit, 173
of financial system in 1995,
136–137
Greenspan’s understanding of, 4 in housing market, 261
Martin’s battle against, 23–24 and the middle class, 355
need for, 287–288
in New York City housing market,
356–357
political influences on, 116
Inflation (
Cont.
)
price, 350–351
understandings of, 170
verbal, 63–64
ING Bank, 342
Initial public offerings (IPOs), 141,
174 (
See also specific companies
) Inskeep, Steve, 343
Institutional Broker’s Estimate
System (I/B/E/S), 197, 200, 233 Insurance, portfolio, 110–112
Integrated Resources, 117
Intel Corporation, 177, 207, 216,
235, 248
Interest rates:
in 1980s, 72
in 1990s, 169
and consumption expenditure, 298 decline in, 262
and global crisis, 338
and house prices, 260
and leveraging, 126
over the past two decades, 359 and recession of early 1990s,
123, 126
and savings and loan
problems, 86
zero or negative, 259
(
See also
Fed funds rate)
Interest-only mortgages, 107
International banking crises, 311 International monetary system,
37–38
Internet, 141–142, 196
Internet companies, 10, 216, 217 Investment bankers, average pay of,
323, 355
Investment banks, 124–125, 165 IPOs (
see
Initial public offerings) Irrational exuberance, 105, 160–161,
163, 240
Irvine, California, 86, 90, 165,
274, 279
IT innovations, 199