CNN Insight

A Profile Of Alan Greenspan

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JONATHAN MANN, INSIGHT (voice-over): A celebrity in the central bank, an obfuscating and frequently incomprehensible economist emerges as one of the most important men of our era - a profile of Alan Greenspan.

(on camera): Hello, and welcome.

Alan Greenspan doesn't like small talk, and when he has something important to say in public, he intentionally says it ambiguously enough to be easily misunderstood. The chairman of the U.S. Federal Reserve communicates very cautiously with words and mostly clearly with numbers on days like today, when the Fed announced interest rate policy and watched the world economy respond.

Few people know much about Greenspan beyond those numbers and that enormous influence. So we thought we have a look on our program today - a man of interest, a profile from CNN's Maggie Lake.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Alan Greenspan rules. Out of nowhere, the Federal Reserve cut the key interest rate by 50 basis points.

UNIDENTIFIED FEMALE: The main markets turned around and headed south after the Federal Reserve chairman Alan Greenspan dashed hopes of an early interest rate cut in the U.S.

UNIDENTIFIED MALE: And the key question and we expect it to come early, they will ask, "Mr. Chairman, is the United States' economy in a recession?" He doesn't answer that question in his testimony. He did answer it 15 days ago, when he said, quote, "At the moment, we are not."

UNIDENTIFIED MALE: He rules the world right now.

UNIDENTIFIED MALE: Alan Greenspan is economic policy's first rock star.

MAGGIE LAKE, CNN CORRESPONDENT (voice-over): When Alan Greenspan talks, the world listens. The U.S. Federal Reserve chairman has become one of the most closely followed people on the planet. Every speech and statement he makes is monitored and dissected.

Camera crews shoot him walking to work, getting married and even going to his birthday celebration. But that wasn't always the case.

UNIDENTIFIED FEMALE: Happy birthday, Mr. Greenspan.

LAKE: But that wasn't always the case.

LEN GARMENT, FORMER BAND MEMBER: I didn't know that he wasn't going to be anything else but an unemployed saxophonist in short order like me.

LAKE: Greenspan began his career as a jazz musician, attending the prestigious music academy Julliard and playing tenor saxophone with Leonard Garment with the Henry Jerome Orchestra. But his financial prowess was already surfacing.

GARMENT: Well, he took care of the income tax returns for members of the band. In fact, I think as I recall, it was about seven bucks a throw, which is pretty good, pretty good - a very modest fee for a soon- to-be chairman of the Federal Reserve.

LAKE: In 1954, Greenspan left music to head his own consulting firm, Townsend-Greenspan with partner William Townsend. No stranger to politics, Greenspan eventually served as chair of the President's Council of Economic Advisers under President Ford.

But an even higher profile role came in 1987, when Ronald Reagan tapped him to be chairman of the Federal Reserve. He came with a good reputation, one that would be tested quickly.

On October 19, 1987, just 72 days after he started the job, the U.S. stock market crashed. The Dow Jones Industrial Average fell 20 percent in one day, wiping out close to $1 trillion in wealth. Panic swept Wall Street. The Federal Reserve responded immediately with a one-line statement that it would do what was needed to inject enough money into the system to keep the U.S. going. The move proved to be crucial.

DAVID JONES, AUBREY G. LANSTON: And he pumped in enough liquidity into the economy to meet all the needs and to take us through that crisis, and had it not been for his very rapid and very correct response, who knows what would have happened.

LAKE: The stock market recovered its pre-crash level in just 15 months and ultimately became the greatest bull market the United States had ever known.

At the same time the economy was turning in an historic performance of its own and turning traditional economics upside down, producing growth and record low unemployment without inflation and surprising even Greenspan itself.

EDDIE GEORGE, BANK OF ENGLAND GOVERNOR: At first he thought it was due to simply the production of information technology equipment. But then he saw that it was the application of that technology through the whole of the economy.

LAKE: The information technology revolution was under way, and so was the longest economic expansion in U.S. history. But things were not flowing as smoothly outside U.S. borders. From 1997 to 1998, financial trouble that started in Thailand spread through Asia and then to Russia, unleashing an unprecedented domino effect in global markets.

With large investment funds, long-term capital management neared failure and threatened to pull down blue chip investment banks around the world. Investors stopped trading all but the safest stocks and bonds. The world financial system was on the verge of unhinging.

In response to the increasing turmoil, the Fed decided to cut interest rates not once, but three times in two months, including an inter-meeting rate cut. The aggressive action under Greenspan's leadership reestablished order in the markets.

LAWRENCE SUMMERS, FMR. U.S. TREASURY SECRETARY: What's it's important of his characteristics is just very good predictive judgment for how markets will react to different steps and therefore an ability to suggest the steps that will be most constructive in producing market confidence, not just in the short run but in the long run as well.

LAKE: The global market rescue earned Lawrence Summers, then Deputy Treasury Secretary; Robert Rubin, then Treasury Secretary; and Fed chairman Alan Greenspan the title "the committee to save the world." Greenspan's reputation took on new proportions.

UNIDENTIFIED FEMALE: He holds a lot of juice, a lot of juice. I think right now Bush holds more Kool-Aid than any thing. I think Greenspan is the man.

UNIDENTIFIED MALE: He's probably one of the most important men in this whole world, I would say.

UNIDENTIFIED MALE: People in general I think are much better off than they were in the early `90s, so I think he's done a nice job with the economy.

LAKE: Web sites popped up. Cartoons, like this one from the New Yorker magazine, show Greenspan's reach. He had invaded the minds and bedrooms of average citizens. And not just in the United States - Greenspan became central banker to the world.

ALISON COTTRELL, UBS WARBURG: Essentially, you have a very, very smart man in charge of the world's largest economy and an economy that's been performing remarkably successfully. And overseas, as in the United States, a lot of the credit for that has been put at his feet.

LAKE: But while his public popularity soared, inside Fed circles, criticism about Greenspan's strong leadership was starting to emerge. Critics said his desire for consensus alienated fellow board members and stifled healthy debate.

Alice Rivlin, the former vice chair, disagrees. She said he made board members feel that he was listening to them.

ALICE RIVLIN, FMR. VICE CHAIR, FEDERAL RESERVE: We had a lot of good conversations. He doesn't take himself as seriously as other people take him. He has a good sense of humor.

LAKE: If he has a sense of humor, it's not always clear who gets the jokes. Greenspan is notorious for speaking in formal, technical language that confuses and confounds even experienced Fed watchers.

ALAN GREENSPAN, U.S. FEDERAL RESERVE CHAIRMAN: Let me put it this way. You cannot substitute an anecdote for a syllogism.

LAKE: Watching Greenspan and deciphering the meaning of his ambiguous speeches has become a national pastime, and if there was ever a doubt that the entire world was hanging on this man's words, it was resolved when Alan Greenspan made his famous irrational exuberance speech.

In December of 1996, Alan Greenspan, worried about the rising U.S. stock market, included a seemingly simply question at the end of a speech he was making in Washington.

GREENSPAN: How do we know when irrational exuberance has unduly escalated asset values?

LAKE: Sensing Greenspan's concerns, investors beat a hasty retreat from stocks, knocking down markets around the world within hours. Tokyo's Nikkei plunged 3 percent. London's FTSE 100 lost 2 percent, and the Dow Jones Industrial Average fell nearly 1 percent.

The sell-off was short lived, but the Fed's ability to move the stock market would continue to come under close scrutiny.

VINCE FARRELL, SPEARS, BENZAK, SALOMON & FARRELL: Never before have we had the volume in the stock market we have now, the volatility, the intensity. So the relationships between the two institutions have changed, and because of what's going on, what the Fed does has become even more important.

LAKE: Maybe too important. The day after the Fed's surprise rate cut two months ago, one newspaper portrayed him as Superman, and many, including the chairman himself, worry that too much faith is being placed in one individual.

RIVLIN: If people think that Alan Greenspan personally holds some sort of key that can move the economy up and down, then they ought to think again. That's not realistic.

FARRELL: The deification is not of Greenspan's choosing. If we choose to sit there and say, "Ooh, ooh, ooh, here's our God," that's our mistake.

LAKE: Mistake or not, investors are now depending on the Fed to put a floor under the tumbling stock market. The U.S. economy is near zero growth, and the Dow Jones Industrial Average is threatening to follow the NADASQ and Standard and Poor's 500 Index into bear market territory.

(on camera): At risk, not just the stock market and the economy, but also Greenspan's legacy. Will he be remembered as the man who presided over the longest expansion and greatest bull market in U.S. history, or the man who ended his tenure as it began -with a stock market crash?

Maggie Lake, CNN Financial News, New York.

(END VIDEOTAPE)

MANN: It has been an especially busy day for the chairman with another interest rate cut. Maggie Lake joins us now to talk about that.

Maggie, a big surprise?

LAKE: You know, it wasn't a big surprise. Everyone was expecting a half percentage point rate cut by the Fed. That's what they got. What they didn't get was what they were hoping for and that was more aggressive action in the last week or so. And especially in the last few days, the market had really been gearing up, hoping the Fed would do something more aggressive and cut by three-quarters of a percentage point, in part because we've seen such weakness in the stock market. When we got the news, it was inevitable we'd see some disappointment today.

We saw some very sharp selling, and as one fund manager put it to me, this is a market that's looking for instant gratification. The certainly didn't get it from the Fed today.

Jonathan?

MANN: When you look at Alan Greenspan over the years and then you look at the decision today, was it in keeping with the experience of the past? Was this the Alan Greenspan that the business world has come to know?

LAKE: I think most people would say it is very consistent with Greenspan's reputation. You know, he wouldn't want to be seen or want the Fed to be seen as panicking or paying too much attention to one element of the economy in particular. In this case, it would be the stock market.

At the same time - and I want to add that he's also there's never been 75 basis point rate cut during Greenspan's tenure, but at the same Greenspan has shown that he can be very responsive to events. And I think the Fed tried to send that message today when they released the statement with their decision. They said they stand ready to act, and they're closely monitoring developments, economic develops that are quickly changing.

They also quickly mentioned the stock market in particular, saying declining equity prices are weighing on consumption. A lot of people saying that that was Greenspan and the Fed sending a signal that the Fed is watching and will not let this economy fall into a recession.

So some would say classic Greenspan - cautious, but in control.

Jonathan?

MANN: It's not just this economy, although he's appointed by the U.S. president for the well-being of the U.S. economy. He is, as you mentioned in your report, central banker to the world. How conscious is he of that as he makes decisions like the ones today?

LAKE: I think Greenspan is very conscious of that role. You know we've seen he has an awful lot of experience as Fed chairman dealing with the global crises from Mexico to Asia, to the Russian crisis and long-term capital management. We've seen how the Fed has responded quickly in all of those cases.

You know we have a greater degree of globalization than ever before. I think Greenspan, more than anyone, understands that and has spoken to that. The U.S. economy is very tied into what happens globally, and the Fed and Greenspan have a very good record on that and it was evidenced by their very rapid response in 1998.

So I think it's not surprising that he mentioned in today's statement or that the Fed, I should say, the Fed Board members mentioned that they are also monitoring global events as well.

Jonathan?

MANN: They're thinking about the rest of the world . I imagine they're thinking about the markets. Tell us about how the markets responded today.

LAKE: Well, not very well. Obviously we saw Wall Street , the stock market very disappointed. We will have to see how individual investors take this. There is a real debate on whether it's main street or Wall Street that the Fed is focusing on. Some would say if it was investors they should, you know, come to rescue and do something to help the stock market here.

But Greenspan and the Fed would say the best way to do that is to protect the economy and ensure that we have balanced and stable growth, going forward with low inflation. It's a thing they talk about again and again. That's the best way to achieve sustainable gains for investors, not coming to individual stock markets or responding individually to stock market movements.

So ultimately, the Fed and Greenspan himself would say this is the best move for investors and that they did the right thing today by taking a cautious approach.

MANN: Maggie Lake, thanks very much.

We have to take a break. When we come back, he's an economist and an operator with some unconventional ideas. A Greenspan biographer offers us his observations. Stay with us for that.

(COMMERCIAL BREAK)

MANN: Alan Greenspan had an intriguing life long before he had an enormous reputation. And he passed through a phase heavily influenced by a controversial philosophy of self-interest and uncontrolled capitalism. Ironic for a man who is paid to look after his country's interests and keep its economy under control.

Joining us now to talk about Greenspan at the Fed and before, is biographer Justin Martin, the author of "Greenspan: The Man Behind The Money."

Thanks so much for being with us.

Before we pass on to the details of Alan Greenspan, he's been central banker in the United States for so long, people might forget, were his predecessors as famous, as admired, as frequently compared with the presidents they served and as frequently regarded as more powerful and more intelligent?

JUSTIN MARTIN, GREENSPAN BIOGRAPHER: Not in the least. This is really quite unprecedented. If you go back to some of his predecessors, they have names like-Paul Volcker is probably the most notable and also the most recent. He left the Fed in 1987.

There are also names like William McChesney Martin and Arthur Burns that are relatively lost in history except for career economists who still are familiar with their various policies. And probably the reason why Greenspan has achieved such an unprecedented stature is because he has presided over the longest boom in U.S. history and also because this is a time in history when more than 50 percent of U.S. households are invested in stocks.

When even if you go back 25 years to the mid 1970s, only 10 percent of households were invested in stocks. So people are far more interested in the economy than they were in the past, and Greenspan's become a touchstone.

MANN: It's easy to focus on individuals, easier than on enormous processes that involved a lot of people. There are a lot of people making economic policy within the U.S. government. There are a lot of people outside the U.S. government making economic decisions that affect the economy.

Why does Alan Greenspan get so much credit, and how much of it do you think he deserves?

MARTIN: He certainly deserves a measure of credit and a decent measure of credit. Obviously, the economy is extremely complex. You've got the entire private sector generating sort of jaw-dropping new technologies on the Internet and so forth, and you've got all the other policymakers in the government - the Treasury secretary, the Council of Economic Advisers, the chairman, the president himself.

So you've got a variety of people involved in economic policy. But a lot of what it has to do with respect to Greenspan having so much power is, one, he has a track record at this point. He is, again, a person that's presided over a long period of prosperity. And secondly, he controls very powerful levers. They're almost like the accelerator and the brake for the economy.

And also, the monetary policy enacted by the Fed, in stark contrast to, say, the fiscal policy, tax policy done by the administration, ripples through the economy relatively quickly. It has an effect often within a few months.

MANN: What makes him so good at it? Is there one particular skill he seems to have that eluded others?

MARTIN: I'd say one of the big skills that Greenspan brings to the job is flexibility. Many Fed chairmen have almost gone by a rule book. When unemployment hits X percent, lower interest rates, or raise interest rates if certain indicators or indexes hit certain levels. Greenspan has been much more flexible.

And at a time when economic rules seem to be changing or technology seems to be playing obviously an increasing role and changing the rules, Greenspan has been much, much more flexible about sort of throwing out the rule book, letting things go a little bit more, almost as if he's conducting an experiment and trying to sort of gather what the new rules are.

MANN: Let me ask you about Greenspan the man. What's he like? If you listen to him talk, he sounds like a dull, incomprehensible fellow. What do the people close to him know and say about him?

MARTIN: Well, the people close to him find a very different person. Obviously, when he goes before Congress, it behooves him, as it has previous Fed chairmen, to use what's termed Fed speak and to kind of obfuscate and circumlocute and talk in circles. The reason being that the Fed likes to sort of be able to conduct its policies with some measure of cover. And for going before Congress ideally the Fed chairman wants to sort of blur the issues a little bit, not get penned down on any particular policy.

But on a personal basis, people find him very erudite, very much a raconteur and someone who has wide and broad interests, far outside of economics and is conversant on those. People who I have spoken with who have sat beside him at dinner and his current wife and ex-wife and long- standing friends all tell me about - all told me about a man who is very passionate about music and literature and topics far-ranging from economics.

MANN: And philosophy - we alluded to that as we were beginning this segment of the program. Tell us about his association with a largely forgotten figure, Ayn Rand.

MARTIN: Sure. He was part of her inner circle from the time he was in his late 20s until the time he was in his early 40s. And so he was very much influenced by her. He was part of a group of, oh, about 12 people who would meet at her apartment in New York City on Saturday nights and debate long into the night about politics and economics and the other topics on which she had very strong opinions.

MANN: Well, let me jump in and ask you about that. Because her opinions were particular. Can you summarize essentially what she taught people like Alan Greenspan?

MARTIN: She was a believer in rugged individualism. The fascinating thing about Ayn Rand is she had come from the Soviet Union and come to the United States, was just a passionate convert to capitalism, and she felt she'd seen sort of the havoc that a socialist- controlled command economy could wreak on the populace.

And so she really sort of pledged allegiance to America and the capitalist system. She was very passionate about it. And one thing Greenspan was really drawn to is Greenspan had studied a lot of economics, studied with some real master economists. And yet what Ayn Rand gave Greenspan was a sense that there was a moral imperative to capitalism. That was her issue was that capitalism wasn't just an efficient system, wasn't just an attractive system from all kinds of statistical bases. It actually was a morally supreme system was her teaching, and Greenspan enjoyed that and really appreciated it.

MANN: Does he bring that to his work?

MARTIN: He absolutely brings it to his work. Now, the fascinating thing with Ayn Rand is she was very much - she was a real advocate of free enterprise. She abhorred the idea of the government interfering in the economy. Here you have Greenspan, a very flexible person, having matured a bit or gotten - moved along in years obviously intervening in the economy.

At the same time, as for him having a belief in a primacy of capitalism, I think he still maintains that, and I think it's one of the things that informs him in his job and makes him take his job very, very seriously.

MANN: Every time we see him, he's talking about numbers or looking at papers. He seems like a studious man. Washington is a city of people with sharp knives. Is Alan Greenspan a man with knives of his own?

MARTIN: Alan Greenspan's a very, very savvy political operator. Again, I talked to countless people who observed this at close range, and probably a good way to describe Alan Greenspan - he's a master at giving anybody who might be an opponent enough rope to hang themselves. He's very good at that.

A quintessential classic example is back in the mid `90s, there was a Fed vice chairman, a person who could have possibly succeeded Alan Greenspan as chairman, a man named Alan Blinder. And Alan Blinder had views very divergent from Greenspan's views. Rather than Greenspan taking him on, one on one, making comments to his colleagues at the Fed that were derisive about Alan Blinder, he just let Alan Blinder speak and present his particular views, let his Fed colleagues make up their minds. And they made up their minds that they sort of didn't necessarily agree with Blinder, and Blinder was out.

So that's a quintessential Greenspan gambit.

MANN: Intriguing, because people constantly talk about Greenspan and less about his colleagues on the Federal Reserve Board. Is it a democracy, or is it Greenspan's Fed?

MARTIN: It's kind of a little of both. Greenspan is obviously the visible head of the Fed. As Fed chairman, if he says, you know, black is black, a lot of people are going to believe that and buy that. At the same time, it's very crucial for him to build consensus. It's very dangerous if he were to go off in the direction different from his colleagues.

Paul Volcker, his predecessor, had some problems when he actually went in a direction different from his colleagues. So Greenspan is actually a master at building that consensus, at arguing his particular point of view and also listening to the points of view of his colleagues and bringing his own views around. So what you see with the Fed is a generally fairly united front.

There's often, you know, deviation one bit or another by one governor or another, but there doesn't tend to be too much, at least on the public face of it, lack of consensus.

MANN: When you think about this and talking about this, I'm struck by the fact that if life had been a little bit different, he could have ended up by now as simply a retired saxophone player.

MARTIN: That's absolutely true. It's funny. He started his - in fact, a very interesting thing with him is he was a professional musician. He actually went to Julliard, the famous music school here in New York City that produced talents such as Yo-Yo Ma the cellist. And really, his first career, he wanted to be the next Benny Goodman. No thought of economics whatsoever.

But the band that he joined, called the Henry Jerome Band, in the mid 1940s had some pretty talented musicians. Greenspan had to stack himself up against them night after night, became pretty clear to him pretty quickly that he didn't have what it took to be a major league quality musician. He decided to look elsewhere, chose economics as his next endeavor, and the rest is history, I suppose.

MANN: Quite literally - history and economics. Justin Martin, author of "Greenspan: The Man Behind The Money." Thanks so much for talking with us.

MARTIN: My pleasure.

MANN: And that is INSIGHT for this day. I'm Jonathan Mann. The news continues.

END

TO ORDER VIDEOTAPES AND TRANSCRIPTS OF CNN INTERNATIONAL PROGRAMMING, PLEASE CALL 800-CNN-NEWS OR USE THE SECURE ONLINE ORDER FROM LOCATED AT www.fdch.com