Was Alan Greenspan the Man Who Knew?

Author Sebastian Mallaby's surprising insights into whether the former Fed chairman foresaw the 2008 crash.

Print this page

Who knew what — and when did they know it? It sounds like a murder mystery, but those are the questions Sebastian Mallaby probed when researching his book The Man Who Knew: The Life & Times of Alan Greenspan.

Greenspan was at the helm of the US Federal Reserve during the run-up to the 2008 collapse of Lehman Brothers and the subsequent global financial crisis considered by many economists to be the worst since the Great Depression of the 1930s. Mallaby, who was recently at Columbia Business School to receive the 2017 Eccles Award for Excellence in Economic Writing, held forth on why he chose Greenspan as a subject, what he learned about Greenspan’s man-about-town reputation, and whether Greenspan should have foreseen the events leading up to the crash.

Why he chose Greenspan as subject:

“What motivated me to write this book was partly the specter of 2008 and the idea that modern finance had been created with the invention of financial derivatives, and with the uncoupling of exchange rates in 1971. I realized that Alan Greenspan’s public life perfectly mapped onto this period. He joined public life when he became a Nixon advisor in 1967, just on the eve of the campaign, and he retired just on the eve of the ’08 crash. So the four decades of his public participation were really the story of the making of modern finance.”

Greenspan’s connection with novelist Ayn Rand:

"Picture this measurement person [Greenspan] who was more comfortable teasing truth out of numbers than with grand philosophical theories. This all changed when, in his late 20s, he met Ayn Rand, who was this transfixing figure, a charismatic Russian emigre novelist who had a very developed, pure libertarian sense. She challenged him to think differently and be willing to construct a total model of how a society ought to function.

"In his late 30s, when giving lectures for the Ayn Rand Institute, he argued that there shouldn’t be a central bank. In there — and you can’t make this stuff up — he said the creation of the central bank was a historic error. So the man who [later] personified the Fed believed there shouldn’t be a Fed. He said having gold as a monetary anchor would have been a better and purer solution."

On Greenspan’s personal life:

"We remember Alan Greenspan in one way: as the sober-suited banker. But of course, there’s a big hinterland to that story. He dated news anchors, senators, and beauty queens.

"There would [periodically] be these very learned discussions at Brookings, important debates about the nature of trends and productivity. At the end, most of the participants would go to the bar and have a beer, except for one of them, [Greenspan], who would be picked up by Barbara Walters in a limousine."

Did Greenspan err in not stepping in sooner to restrain the financial bubble that led up to the 2008 crash?

"He shared with me that in the course of a public life you make a lot of decisions. Your batting average should not be expected to be perfect. He also shared publicly, not just with me, that his big mistake was to underestimate that way people are not merely irrational, but irrational in a coordinated way. Markets can overshoot way more than you might think. Financial institutions are less good at protecting themselves from blowing up than they should be."

Was Greenspan the man who knew?

"My view on this is you cannot be not responsible. He’s the biggest, most important economic player in Washington DC. You run the Fed through to January 2006. By this point the bubble is baked in. You can’t turn around and say, ‘I had no responsibility.’"

articles by Topic