Book Review - The Man Who Knew
A new biography of former US Federal Reserve Chairman Allan Greenspan provides an intimate portrait, and a cautionary tale.
Winner of the 2016 FT & McKinsey Business Book of the Year Award, this biography of Allan Greenspan, Chairman of the US Federal Reserve, gives readers an exceptionally well-researched picture of the “maestro” of US economic policy and the fascinating politics and dilemmas he faced in becoming one of the world’s most important policymakers of his time.
The Man Who Knew traces Greenspan’s rise and rise in his early years to his pinnacle at the top of the Fed (and US economy), a position he held for roughly 18 years (1987-2006), ironically only 18 months before the start of the 2007 Global Financial Crisis. Author Sebastian Mallaby, a highly regarded author and journalist, had virtually free access to Greenspan. However, he also spoke to Greenspan’s friends and former work colleagues, his rivals and other independent sources, while conducting extensive archival research over five years.
The result is a fascinating, elegantly written story of the evolution of a man and the complex political and economic systems in which he played a major role. We see the human side of Greenspan’s life: he is both a shy, intellectual “momma’s boy” and, surprisingly, a celebrity bachelor. He mingles with the New York and Washington elite over decades. Many of his flaws and contradictions come to the fore as he moves from youthful extreme libertarian views (like supporting the gold standard and decrying the need for a central bank), to more pragmatic positions as he grows older. He shifts his stances to become acceptable to both conservative Republicans and liberal Democrats alike, although Mallaby also describes some of Greenspan’s clashes with top politicians including Presidents Carter, Reagan and Clinton, and their staffs.
After being revered as the near-genius who could do no wrong in controlling inflation while presiding over an exceptionally long period of economic expansion, retrospectively Greenspan was widely blamed for much of the disaster associated with the Global Financial Crisis. He was condemned for allowing derivatives trading to go unregulated, and banks to have a minimum amount of supervision, as well as for not intervening when there was clearly a bubble in the US housing market. One of Mallaby’s key themes is that Greenspan was continually conflicted in his Chairman’s role. He was largely confident about taming inflation and had the tools to do this, but found it to be futile for the Fed to try to control banking practices – due to both political pressures and practical considerations (how can bureaucrats “second guess” expert bankers?). Over his career Greenspan had bailed out banks, cities and even foreign countries, and had also experienced several serious market crashes, including the tech stock bubble of 2000. He had identified that bubble and decided to do nothing to correct it, and the US financial system had weathered the storm fairly well. Hence even though he was well aware of the housing bubble, he did not intervene.
The author also uses the career of Allan Greenspan as a cautionary tale for the future. Not only is it wrong to believe that one man has the answers to all of our financial ills because he has successfully navigated problems in the past, Mallaby says, but it is even more dangerous to allow complacency to take over the attitudes of policymakers, public watchdogs and the public in general.
Readers’ note: For those daunted by this book’s nearly 700 pages, I found listening to it during my morning commute to be a very engaging and satisfying way to learn about the life and times of Alan Greenspan.