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

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Authors: Frederick Sheehan
gold rose to more than $800 an ounce within a decade, and holding paper assets was an easy way to lose a life’s savings. Commodities, rare stamps, and Rembrandts were the assets to hold during the 1970s. Americans abroad found that Italian and Belgian hotels would not accept dollars. The annual inflation rate of goods (the CPI: Consumer Price Index) rose to 18 percent, short-term Treasury bills traded at 17 percent; and the 30-year bond yielded 15.6 percent.
    46 Ibid., p. 276.
47 Ibid., p. 277.
48 William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon and Schuster, 1987), p. 337.
    Greenspan Expands His Rolodex
    The American public was at sea. It didn’t know what was coming next, so it turned to economists for answers. One who soon acquired national attention was Alan Greenspan.
    Time magazine organized an illustrious Board of Economists that met four times a year. Alan Greenspan joined in 1971. He now had the opportunity to develop kinships with other members, including Otto Eckstein [formerly a member of President Johnson’s Council of Economic Advisers (CEA)], Walter Heller (former chairman of the CEA), Arthur Okun (former chairman of the CEA), Beryl Sprinkel (future CEA chairman during the Reagan administration), and Robert Triffin (early forecaster of the Bretton Woods disaster). Greenspan would remain on the board until his turn as chairman of the Federal Reserve began in 1987, with the exception of his CEA years. These administration officials would come in handy during the Reagan presidency.
    By 1973, Greenspan was regularly appearing in public, at least where it mattered: in the pages of the New York Times . He was photographed with “10 leading business and academic economists” in the January 2, 1973, issue. The group included Murray Weidenbaum, a professor of economics at Washington University who would become Nixon’s assistant secretary of the treasury for economic policy and later President Reagan’s first chairman of the CEA, and Albert Rees, chairman of Princeton University’s department of economics. Rees had served as assistant professor of economics with Milton Friedman at the University of Chicago, where he wrote an important monograph with George Shultz when Shultz was dean of Chicago’s Graduate School of Business. After serving as secretary of labor from 1969 to 1970, Schultz directed the Office of Management and Budget from 1970 to 1972, moved to head the Treasury Department from 1972 to 1974, and later was Reagan’s secretary of state from 1982 to 1989. Shultz’s launching pad had been his apprenticeship as senior staff economist to Arthur Burns at the CEA. 49 Clearly, the pattern of familiar faces rising up the economic stepladder was well established. Also, the tendency to hand national policy to economists was more pronounced. This vetting of candidates for senior posts successfully relieved the pool of eccentric dispositions.
    49 Bremner, Chairman of the Fed , p. 267.
     
    January 1973: “It’s Very Rare That You Can Be as Unqualifiedly Bullish as You Can Now”
    On January 7, 1973, Greenspan’s picture again appeared in the Times among a group of market forecasters, where he was described as “highly optimistic.” He announced: “It’s very rare that you can be as unqualifiedly bullish as you can now.” The Dow Jones Industrial Average peaked at 1,051 four days later and bottomed at 571 on December 12, 1974—a loss of 46 percent during a period when the dollar lost 21 percent of its value against consumer prices.
    Greenspan’s inaccuracy was not important. The other economists quoted also missed the bust (although Greenspan’s enthusiasm was singularly inept). His portrait was where it belonged. It is curious, though, that the man who could be counted on to give the Times a bearish, or at least highly qualified, stock market forecast in the 1960s was now a cheerleader when the market was highly speculative, as was the

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