Alan Greenspan, who in nearly two decades as chairman of the Federal Reserve nurtured a long run of prosperity, navigated crises and was a powerful and polarizing force in shaping market-friendly policies, died on Monday at his home in Washington. He was 100. <\/p>\n
The cause was complications of Parkinson\u2019s disease, his wife, Andrea Mitchell, the chief Washington correspondent and chief foreign affairs correspondent for NBC News, said in a statement.<\/p>\n
The pre-eminent economic policymaker of his time and arguably the most recognizable economist of any era, Mr. Greenspan led the central bank under four presidents of both parties from 1987 to 2006.<\/p>\n
Much of his tenure coincided with a streak of affluence in which he stood as the embodiment of a triumphant, post-Cold War strain of American capitalism: optimistic, faithful in the power of markets to improve living standards, captivated by the power of technology and averse to regulation.<\/p>\n
But the ideological stamp he put on policymaking came to be associated as well with the destructive consequences of forces that emerged on his watch, including deregulation of banking and Wall Street, the loss of American jobs to free trade and persistent concerns about bubbles in stock and housing prices.<\/p>\n
Even as Mr. Greenspan skillfully managed interest rates in a way that kept the economy humming along, he remained leery of confronting a danger<\/a> he well recognized: that the low-inflation, easy-money environment he had helped create was putting the United States at risk by fueling unsustainable investment booms. And he remained reluctant to act as banks and investment firms adopted complex new trading techniques that would come to wreak great damage.<\/p>\n At the Fed, he was remarkably successful at what he considered the central banker\u2019s primary task of holding down inflation. He also helped the United States deal with periodic shocks, including a stock market crash just weeks after he took office, the near-meltdown of Asian financial markets a decade later and the aftereffects of the Sept. 11 terrorist attacks.<\/p>\n Only after he stepped down in early 2006 \u2014 and especially following the crisis on Wall Street in 2008, the near-collapse of the mortgage market and the ensuing deep recession \u2014 were his legacy and philosophy challenged in a concerted way.<\/p>\n By that point, one group of critics blamed him for not heading off a housing bubble by pushing interest rates higher. Another accused him of promoting a corrosive free-market fundamentalism that left the financial system to operate unchecked as it adopted increasingly risky practices.<\/p>\n After overseeing a period of immense wealth creation, he was often portrayed as among those responsible for the 2008 crisis and the economic and political shocks that followed it.<\/p>\n His failure to put greater focus on keeping the financial system stable once he had shown he could keep inflation in check \u201cwas Greenspan\u2019s most consequential error, one that he did not have to make,\u201d his biographer, Sebastian Mallaby, concluded<\/a>.<\/p>\n His record \u2014 and the degree to which he deserves either the praise or the blame heaped on him \u2014 remains a subject of intense debate. There is no doubt that he was a pivotal figure during a period of immense ferment in the economy and deep ideological divides over how to manage it.<\/p>\n At the peak of his fame, as the economy boomed in the late 1990s, his merest phrase could send the markets sharply up or down, and his face, behind thick glasses, was as familiar as any movie star\u2019s.<\/p>\n In public, he often spoke in an elliptical jargon that even his fellow economists had trouble deciphering.<\/p>\n Behind the scenes in Washington, Mr. Greenspan was a master of the political power game. Schooled by his experiences as a policy adviser to Richard M. Nixon\u2019s 1968 presidential campaign and his role as President Gerald R. Ford\u2019s chief economist, he developed into a wily operator who skillfully protected the Fed\u2019s independence while shaping the agendas of successive presidents and steering legislation on Capitol Hill.<\/p>\n His predecessor, Paul A. Volcker, had established that the central bank could hold off political pressure for lower interest rates with a tight-money strategy in the late 1970s and early 1980s. In the process, Mr. Volcker gave the Fed tremendous credibility in the financial markets and bequeathed to Mr. Greenspan plenty of room to shape policy in Washington.<\/p>\n Mr. Greenspan used his influence shrewdly on issues that, strictly speaking, went beyond his mandate at the Fed, weighing in regularly to shape policy on taxes, the budget deficit and trade. A Republican with strong libertarian leanings \u2014 in his younger days he was an acolyte of Ayn Rand<\/a>, and he was appointed to the Fed by President Ronald Reagan \u2014 he nonetheless managed to infuriate Republicans as well as Democrats even as he won reappointment from presidents of both parties.<\/p>\n Allies of President George H.W. Bush blamed Mr. Greenspan in part for Mr. Bush\u2019s loss of the White House to Bill Clinton in 1992, saying Mr. Greenspan had kept interest rates too high as the economy was coming out of recession. Mr. Greenspan built close ties to Mr. Clinton and his team, helping to infuse the Democratic administration with a distinctly market-friendly stance on financial regulation and encouraging Mr. Clinton early on to embrace deficit reduction, over the objections of liberals.<\/p>\n But in 2001, when Mr. Greenspan backed President George W. Bush\u2019s big income tax cut package, Democrats howled that he had sold out his deficit-reduction beliefs to curry favor with the new Republican administration.<\/p>\n The Washington Life<\/p>\n Alan Greenspan worked all the angles, cultivating allies across the aisle and at both ends of Pennsylvania Avenue. Ever-present in social Washington, he was a genial if reserved figure as he mingled at parties with Supreme Court justices, cabinet secretaries and journalists, sporting an amused smile and offering a soft handshake.<\/p>\n He dated Barbara Walters<\/a> of ABC News in the late 1970s. (\u201cI\u2019m not threatened by a powerful woman,\u201d he wrote in his autobiography.) In 1997, he married Ms. Mitchell, who by his account never entirely forgave him for discussing antitrust policy on their first date many years earlier; their wedding was presided over by Justice Ruth Bader Ginsburg<\/a>. Ms. Mitchell is Mr. Greenspan\u2019s only immediate survivor.<\/p>\n He was an avid tennis player, picking the game up in earnest on the White House court while serving in the Ford administration and pursuing it in spirited competition well into his 80s against a succession of Treasury secretaries and senior officials from both parties.<\/p>\n He eschewed formulas and rules other central bankers often relied upon in favor of a more intuitive approach based on deep analysis of data about decisions being made by businesses, consumers and investors. (He admitted to doing some of his best thinking while soaking in a hot bath<\/a>.)<\/p>\n At the Fed, he perceived how a set of powerful forces, chief among them rapid advances in technology and increased global competition, were altering the outlook for inflation and therefore the economy\u2019s ability to grow and create jobs without undue upward pressure on prices.<\/p>\n Because of technology, Mr. Greenspan concluded in the mid-1990s, all kinds of industries were able to produce more for less. In economic terms, they were generating improved productivity gains.<\/p>\n Acting on that belief, Mr. Greenspan tended to keep interest rates lower than traditional economic models suggested they needed to be. As a result, he was able to allow the economy to keep expanding at a rapid clip even as unemployment descended to levels that previous generations of central bankers would have regarded as warning signals of inflation and a reason to raise rates.<\/p>\n For much of his time as Fed chairman, especially in the late 1990s, Mr. Greenspan appeared to be right. His policies helped create conditions in which price increases were negligible, the economy created millions of new jobs, businesses were able to borrow at attractive rates and the stock market boomed.<\/p>\n But the productivity gains began fading away after the turn of the century. And even as monetary policy under Mr. Greenspan appeared to have triumphed to a remarkable degree over the business cycle, he and the Fed were confronted with what proved to be troublesome and ultimately disruptive forces that they failed to fully understand, much less tame.<\/p>\n The Revenge of Risk<\/p>\n The cheap-money environment in the United States coincided with two other developments. The first was a sense among investors that the Greenspan Fed would always step in to curb the damage from financial crises, limiting their risk and arguably breeding complacency.<\/p>\n The other was the emergence of a vast pool of global savings, generated in large part by rapid growth in China and other developing nations. That capital washed over borders in search of profitable investment opportunities, often driving down long-term interest rates, like those on mortgages. But it could be fickle, fleeing again when trouble arose or opportunity beckoned elsewhere.<\/p>\n As it helped fuel first the stock market and then the housing market in the United States, the global savings pool made many households wealthier than they had ever been, at least on paper. It also helped push asset prices to what proved to be unsustainable levels in the United States and elsewhere, creating boom and bust cycles.<\/p>\n Mr. Greenspan had long been interested in the interplay between the economy and prices of assets \u2014 stocks, bonds and homes. He set off financial tremors in 1996 simply by raising the question<\/a> publicly of whether \u201cirrational exuberance\u201d was creating bubbles.<\/p>\n He proved reluctant to intervene to head off or prick bubbles when they appeared during his time in office, even as he fretted about the problem in private. Mr. Greenspan often suggested in public that it was all but impossible to avert or deflate bubbles without damaging the economy \u2014 in part, he said, because it is hard to identify a bubble until it has burst.<\/p>\n \u201cIt is far from obvious,\u201d Mr. Greenspan said in 2004<\/a>, \u201cthat bubbles, even if identified early, can be pre-empted at lower cost than a substantial economic contraction and possible financial destabilization \u2014 the very outcomes we would be seeking to avoid.\u201d<\/p>\n The risk from bubbles was amplified by the rapid growth of new and risky financial instruments. Although Mr. Greenspan had concerns about the housing market in particular \u2014 he tried for years, in the face of bipartisan congressional opposition, to rein in Fannie Mae and Freddie Mac, the government-chartered companies that fueled the securitization of mortgages \u2014 he was generally a leading advocate of allowing financial markets to police themselves as much as possible.<\/p>\n His position was that the market could expose and punish risky behavior much more efficiently than regulations enforced by government officials. His views were influential with, among others, top Clinton administration officials, who often came down on his side during debates over financial regulation.<\/p>\n Mr. Greenspan\u2019s general philosophy, and his influence, survived the bursting of the technology-stock bubble in 2000, which foreshadowed the end of what at the time was the longest economic expansion on record \u2014 10 years, from 1991 to 2001.<\/p>\n The economy bounced back within a year, despite the financial and psychological shock of the Sept. 11 attacks. Mr. Greenspan turned aside warnings that the real estate market was becoming a bubble during the first decade of the new century and continued to keep interest rates at relatively low levels.<\/p>\n By the time the mortgage market started to implode in 2007, triggering the broader crisis that led to the worst recession since the 1930s, Mr. Greenspan had left office. He faced intense criticism that he had failed in his role as a financial regulator and that his easy monetary policy had backfired, destroying much of the wealth that it had helped to create.<\/p>\n One of the most stinging critiques came from John B. Taylor of Stanford University, one of the foremost monetary economists and the developer of a widely accepted approach to determining the proper level of official interest rates. Writing in The Wall Street Journal in early 2009, Professor Taylor laid the blame<\/a> for the housing bubble squarely, if not solely, on the Greenspan Fed, saying it had kept rates too low for too long.<\/p>\n \u201cThe Fed held its target interest rate, especially in 2003-05, well below known monetary guidelines that say what good policy should be based on historical experience,\u201d Professor Taylor wrote. \u201cKeeping interest rates on the track that worked well in the past two decades, rather than keeping rates so low, would have prevented the boom and bust.\u201d<\/p>\n In the face of that kind of criticism, Mr. Greenspan spent much of his time after leaving office in February 2006 defending his legacy. Known at the height of his power by terms like \u201cmaestro<\/a>\u201d and \u201coracle,\u201d he confessed in late 2008 to being \u201cin a state of shocked disbelief\u201d<\/a> at the failure of market forces to avert the economic calamity. His belief that markets were guided by rational actors, he acknowledged, had been shaken.<\/p>\n More even than his conduct of interest rate policy, his laissez-faire approach to the regulation of increasingly complex and interconnected financial markets exposed him to second-guessing.<\/p>\n Derivatives and the Markets<\/p>\n The criticism was focused in particular on his attitude toward derivatives. Financial instruments that allow companies and investors to spread risk, derivatives were later blamed for spreading and accelerating the financial shocks that rocked the economy in 2007 and 2008.<\/p>\n Mr. Greenspan played a key role in the late 1990s in heading off efforts to regulate derivatives more tightly. He was close allies in those years with most members of the Clinton economic team, including Treasury Secretary Robert E. Rubin and Lawrence H. Summers, Mr. Rubin\u2019s deputy and successor. (The three were dubbed \u201cThe Committee to Save the World\u201d<\/a> on a Time magazine cover in 1999 after addressing a succession of financial crises.)<\/p>\n Together with them<\/a>, Mr. Greenspan worked to block<\/a> a proposal put forward in 1998 by Brooksley Born, the head of the Commodity Futures Trading Commission, that called for greater transparency in derivatives trading and more cushions against losses.<\/p>\n Mr. Greenspan and his allies asserted that the proposed regulation could destabilize the markets. Throughout the debate, Mr. Greenspan argued that the financial markets, and investment firms themselves, would do a better job of policing excess risk than the government could ever do.<\/p>\n The risks that financial instruments like derivatives could cause huge losses throughout the financial system were well known even at the time. The Fed was deeply involved in efforts in the summer of 1998 to keep the failure of a firm called Long-Term Capital Management from bringing down much of Wall Street when its use of derivatives and other sophisticated instruments went sour.<\/p>\n Nonetheless, the financial collapse of 2008 did little to alter his view that markets are better than governments at regulating risk, despite the damage done to entire economies when markets failed.<\/p>\n \u201cIt seems superfluous to constrain trading in some of the newer derivatives and other innovative financial products of the past decade,\u201d he wrote in a postscript to an updated version of his autobiography in 2008. \u201cThe worst have failed; investors no longer fund them and are not likely to in the future.\u201d<\/p>\n From Juilliard to Ayn Rand<\/p>\n Alan Greenspan was born on March 6, 1926, in New York City. He was the only child of Herbert and Rose (Goldsmith) Greenspan. His parents divorced when he was 5, and he was raised by his mother in the Washington Heights section of Manhattan.<\/p>\n With the enthusiastic encouragement of his mother, who enjoyed singing, dancing and playing the piano, he became an accomplished musician in his teenage years. After graduating from George Washington High School, he went on to the Juilliard School and spent several years playing saxophone in a swing band.<\/p>\n During the band\u2019s gigs, Mr. Greenspan would spend breaks reading books he had borrowed from the library. \u201cAnd one day I got a book out on business, finance or something on the stock market,\u201d he said in a 1989 interview<\/a> with The New York Times Magazine, \u201cand I found it really fascinating.\u201d<\/p>\n Recognizing that economics might prove a more fruitful field for him than music, Mr. Greenspan left Juilliard and entered New York University, where he earned a bachelor\u2019s degree in 1948 and a master\u2019s in 1950, both in economics. He started work on his Ph.D. at Columbia University, where he studied under Arthur F. Burns<\/a>, who would later become Fed chairman. Mr. Greenspan eventually received a doctorate from N.Y.U. in 1977.<\/p>\n Mr. Greenspan was married in 1952 to Joan Mitchell (later Joan Mitchell Blumenthal), a painter and writer; the marriage ended after a year.<\/p>\n His specialty was forecasting, built around intense study of arcane statistics rather than grand theories. As he was building a professional reputation during the 1950s, Mr. Greenspan was also developing an intense free-market philosophy, one that was heavily influenced by Ms. Rand, whose novels espoused laissez-faire capitalism built around a \u201crational selfishness,\u201d or the idea that society functions best when individuals pursue their self-interest.<\/p>\n Through his first wife, Mr. Greenspan met Ms. Rand in 1952 and soon became part of her inner circle, spending hours debating the relationships among individuals, governments and markets. Mr. Greenspan, who had come of age during the reign of Keynesian theory \u2014 which came to justify the idea of an activist government role in the economy, including the use of government spending to stimulate growth and redistribute wealth quickly \u2014 found his assumptions under sustained intellectual attack from Ms. Rand.<\/p>\n Eventually, Mr. Greenspan said, Ms. Rand taught him that capitalism was not only efficient and practical, but moral.<\/p>\n \u201cWhat she did for me, which was an extraordinary experience, was to demonstrate \u2014 that is, aggressively backing me into a corner \u2014 that the positions I was holding were wrong, fundamentally contradictory,\u201d Mr. Greenspan said in the 1989 Times Magazine interview<\/a>. \u201cI was really fascinated and, over the years, as I got to know her better and read her materials and had conversations with her, she had a sort of effect similar to that of a favorite college professor.\u201d<\/p>\n In the G.O.P. Camp<\/p>\n Mr. Greenspan first got involved in politics in 1967, when he signed on as an adviser to Mr. Nixon\u2019s presidential campaign, an experience that exposed him to the trade-offs between ideological principle and winning campaigns. In 1974, shortly before Mr. Nixon resigned in the Watergate scandal, Mr. Greenspan was named chairman of the White House Council of Economic Advisers, a post he took up just after Mr. Ford took office, a period when the nation was enduring not just the political shock of Watergate but also the economic shock of soaring oil prices and roaring inflation.<\/p>\n After Mr. Ford\u2019s loss to Jimmy Carter in 1976, Mr. Greenspan remained active in Republican politics. At the 1980 Republican convention, he played a key role in negotiating an ultimately aborted deal that would have made Mr. Ford the vice-presidential nominee on the Republican ticket with Mr. Reagan as part of a power-sharing arrangement.<\/p>\n After Mr. Reagan\u2019s election as president, Mr. Greenspan was handed the sensitive job of heading a commission to keep the Social Security system from running out of money. In 1983, the commission recommended a mix of benefit cuts and tax increases. Given the real danger that Social Security would soon be unable to meet its obligations, most of the recommendations were adopted by Congress, and Mr. Greenspan\u2019s stock in Washington went up.<\/p>\n Over the next few years, Mr. Greenspan was a regular presence in Washington, advising the Reagan administration, testifying before Congress and serving on various commissions.<\/p>\n