LONGFORM REPRINTS
This article originally appeared in GQ and is reprinted on Longform by permission of the author.
THE LAST TIME Alan Greenspan spoke openly to the press was in 1987, soon after he was appointed chairman of the Federal Reserve. Ever since, when Greenspan speaks to reporters, he keeps it off the record and behind closed doors. Typically, he will escort the writer into a conference room down the hall from his office, where he holds forth on all the major issues of the day, from budget deficits to interest rates to the scourge of spin, until he can politely excuse himself and return to work, having made his opinions clear while offering none of them for quotation. With Greenspan, this is the one-two punch: He leaves his mark, not his fingerprints.
Over the past thirty-eight years, Greenspan has mastered this form of political aikido, and not only with the press. Having served six presidents in four different jobs, he has become one of the most entrenched, powerful figures in Washington, yet he remains one of the most opaque. Even when he does speak publicly, he says very little: Twice a year, he emerges from the labyrinth of the Federal Reserve building on C Street and, with his trademark scowl, shuffles down the aisles of Congress to testify about the Fed, the economy, the dollar…but most of the time, nobody can figure out what he’s saying.
“Financial capital raised in markets or generated from internal cash flow from existing plant and equipment must be continuously directed by firms,”he will say to a chamber of bewildered senators. “The corporate securities that displace treasury securities in the Social Security trust funds must be exactly offset by the mirror-image displacement of corporate securities by government securities in private portfolios.”
In certain parts of Washington, parsing the Fed chairman’s language—known as “Greenspeak”—has become a sort of parlor game. But according to people close to Greenspan, that’s a waste of time. There is nothing to figure out, they say, because Greenspan isn’t saying anything. As his friend of fifty years, Charles Brunie, recalls, “Before he took office, he said, ‘If ever you think you understand me, you will be mistaken, because I plan to obfuscate.’ I remember the word obfuscate.“Or as Greenspan’s tennis partner and former Clinton aide, Gene Sperling, explains, “When he’s sending a vague or mixed signal, it is by design.”Or as Greenspan’s old friend, the economist Milton Friedman, puts it, “I don’t think it’s an accident, whether he’s ambiguous or not.”According to sources at the Fed, Greenspan even takes pleasure in his obfuscation. Sometimes he will return from one of his speeches before Congress and order a video of his testimony, marveling out loud as he watches: “What in the world does that mean?”Obstruction, then, is the name of the game.
Partly, this is because Greenspan can get away with it. As chairman of the Fed, he is virtually untouchable. He is not elected by voters and not controlled by any branch of government. By law, he sets his own budget. By mandate, he and the six other Fed governors have final authority over monetary policy. And by custom, Greenspan can overrule the other governors, which means that he controls a critical portion of the world’s money supply all by himself. He is even immune to most criticism. “The Federal Reserve has a compact with the rest of the government that it doesn’t get criticized,”says the economist and historian James Galbraith. “The Fed gets examined by Congress usually in a very deferential way, and the White House follows a policy of keeping its trap shut.”So if Greenspan wants to keep his opinions to himself or speak gibberish to the world, well, there isn’t anybody who can stop him.
But the real reason Greenspan holds his cards so tight is because secrecy only adds to his power. Within the government, he may be sovereign, but outside, his influence is less concrete. On his own, he administers only two short-term interest rates: the discount rate, which applies to loans from the Fed to banks, and the federal-funds rate, which applies to overnight loans between banks. Neither of these rates has a tremendous impact on the economy in and of itself. What makes them so influential is the fact that nearly every bank in America bases its interest rate on the Fed’s. So if Greenspan raises the federal-funds rate by one percentage point, mortgage rates and business loans will usually rise a point, too; if he brings the funds rate down, banks will lower their rates, which floods the market with borrowed money and gives the economy a boost. This is purely a matter of convention—and nothing in the law requires lenders to follow Greenspan so closely, but the fact that they do gives him a reach into the economy that far exceeds his institutional power. That’s why it’s helpful for him to cultivate an air of mystery and authority, to seem beyond the comprehension of the masses. At the Fed, reputation is everything.
What is remarkable about Greenspan is not how well he has mastered this bit of image broadcasting, becoming the most exalted Fed chairman in history, earning the nickname Maestro and a renown that borders on celebrity. It is not even the great skill with which he has used his fame for influence, overseeing one of the longest periods of growth in American history, doubling the size of the economy, and keeping inflation almost nonexistent. What is most remarkable about Greenspan is that none of this has been enough for him. Over the past two decades, as he has elevated his prestige and power in the market, he has also managed to extend his reach even further—beyond monetary policy altogether and into the realm of politics. According to members of the last three administrations, Greenspan’s veil of secrecy has done more than boost his reputation; it has concealed a long legacy of political activism—the secret meetings he holds with presidents and the secret deals he offers them, using his leverage at the Fed to influence public policy. When you pull back the curtain on Chairman Greenspan, you find a very different man than the neutral academic who speaks in koans to Congress. You find a man who is regarded at the highest levels of government as a shrewd political negotiator, a man who spent the first half of his career as a partisan operative and has only become more political with time—who was handed his job by political allies in exchange for political loyalty and has used that job for political cover while pursuing a political agenda. You find a man who has pushed and pulled the levers of government longer than almost anyone else in Washington. The question is: For what?
***
UP CLOSE, Greenspan is thick like a wrestler, with a low center of gravity and a broad frame. At 79, he shuffles when he walks, and his round shoulders bowl forward under the weight of time. His back, never strong, has only barely brought him through the years; the long, hot bath he takes every morning, opening his spine with the fan on high and the light streaming through the bathroom window just right, the extended spells lying on his office floor to align his vertebrae—they do little to mitigate his pain. He is an old man now, and he looks the part, with loose skin and a gravelly voice that rolls away in whispers. But Greenspan’s mind has lost nothing to the years. When he speaks, his eyes scour the room as if searching for details, darting across the landscape of his imagination for some apt example or metaphor. On the surface he may be fading, but he is a man of interiors.
One of the first things you notice when you probe that interior, when you speak to the people who have known him and have worked with him throughout his career, is his disdain for politicians. It is not that Greenspan dislikes the six presidents he has served; it’s that he has known them all too well. He has seen average men of average intellect enchant the nation with average ideas, and the temptation to influence them has been too great to resist.
“I was playing tennis with Alan one time,”says his friend Charles Brunie, the founder of Oppenheimer Capital. “It was January ’85. We were waiting for a court, and I had just been down to Reagan’s second inauguration with a group called Citizens for America—it was the only group that Reagan saw the week of the inauguration, I’m told. Anyway, I told Alan that I had asked Reagan, ‘Mr. President, if you’ve promised not to cut Social Security benefits, why don’t you tax them?’ and Reagan’s reply was, ‘Well, they’ve already been taxed on the income tax, and when they invest they get taxed on the dividends, and I don’t think it’s morally right to tax them a third time on the same money.’ But Alan said, ‘Oh, Chuck, that couldn’t have been President Reagan. That was Don Regan.’ I said, ‘Alan, I’ve known Reagan for twenty years! I was standing twelve feet from him. It was Reagan.’ But Alan said, ‘No, no, it couldn’t have been Reagan. He wouldn’t have understood that.’ “
Or the time Greenspan and Brunie were out to dinner with Milton Friedman. “I asked the two geniuses,”recalls Brunie, “‘Of all the politicians you have known, how would you rank their intellectual ability?’ And Milton said, ‘Well, on a Bo Derek scale, Bob Taft was a nine and a half, Nixon was a nine, and Reagan’s a seven—’ and Alan interrupted, ‘No, no, Milton. Reagan’s not a seven. He’s a four!’ Milton said, ‘Alan, what do you mean by four?’ Alan said, ‘Well, Gerry Ford’s a four.’ And Milton said, ‘I don’t know what that means.’ And Alan said, ‘Well, if you gave Gerry Ford a series of data, no matter what the series was, he could not develop a concept. And Reagan is the same.’ “
Anyway, not to pick on Reagan and Ford. They’re just the obvious examples, but it’s no better now. The debates last fall almost killed him, seeing Bush and Kerry stand on stage and just shatter and destroy the facts. Watching, Greenspan could feel his whole body tighten up; he was complaining about it for weeks, to anyone who would listen. Is there no room for accuracy anymore? No place for facts? This is what drives him, what makes it almost impossible not to meddle. Twelve hours a day, he sits alone in his office, burying himself in data, in the bland, unglamorous world of figures, while these shiny politicians clog the airwaves with their empty rhetoric and drivel. Day by day, he hunches over his keyboard, poring over the economic reports and financial analyses, the statistics and charts and graphs, the GDP figures and quarterly records and lending patterns, soaking it in, processing it, while the politicians outside hem and haw and rack up deficits like drunken sailors. It is impossible not to notice what they’re doing. Impossible not to recognize that they are out of control, steering the economy toward ruin. He cannot say that publicly. That is a line that he will not cross. Publicly, he is diplomatic and vague, as inscrutable as ever. Fiscal policy is not his jurisdiction; budgets are not his domain. But privately, how can he ignore these things? Privately, he tells his friends that the deficit is a crisis on wings. There is no more room for excuses. No more pinning the blame on war and recession. There are only three options now: to cut spending, raise taxes, or both. Yes, it has come to that, to the point where he, Alan Greenspan, would rather see higher taxes than a higher deficit.
“He has said that he would recommend higher taxes to cut the size of the deficit,”says Milton Friedman. “Several times he has said that. While he prefers to lower spending as a way of reducing the deficit, he would prefer higher taxes to no reduction at all.” And yet nothing happens. Spending rises, revenue drops, and the gap yawns wider. This year the deficit is projected at $427 billion, higher than ever, breaking last year’s record of $412 billion. The government is now losing more than a billion dollars a day, and they don’t even seem to care. They call this budget “austere.”Dick Cheney calls it “the tightest budget.”These are conservatives?
It was not like this with Bill Clinton. Greenspan will say that for Clinton, and for Larry Summers, Bob Rubin, Lloyd Bentsen…the whole Clinton roster. He could talk to those guys. He and his wife, Andrea Mitchell of NBC, still see them socially. Hell, he even hired some of their staff members in 2000, the biggest compliment of all. Those guys balanced budgets. They were disciplined, smart, responsible. They were conservative! They built a surplus, not a deficit. Where is the surplus now?
Now he faces his last year in office, the final 250 federal workdays before it all comes to an end, and what does he leave behind? If he had retired five years ago, he would have walked away from a pristine record—unprecedented growth, a strong dollar, and a balanced budget four years running. That was a legacy to go home on, the fruit of thirteen years of cajoling politicians, coaxing fiscal policy, and, yes, reaching outside the limits of his own office. But now there is a great red abyss where the surplus lay, and on January 31 of next year, when he snaps shut the brass fasteners of his leather briefcase to make his final journey home, after eighteen years, five months, and twenty-one days in this office, he will walk away from that abyss forever. He will leave behind a falling dollar, an exploding deficit, and a looming financial crisis. Can you imagine how that feels?
There is a story he tells. When he was a kid growing up in Washington Heights on the northwest corner of Manhattan, the son of a stockbroker and a furniture saleswoman, this tall, rangy kid with a passion for baseball and a taste for jazz, there was a kid down the street named Stan Getz, and both of them had saxophones. Stan was 15, he was 16, and man, they would wail together. Or anyway, Stan would wail and he would try. Seemed like there was nothing he could do, no amount of practice or passion, nothing to catch up to little Stan Getz. Day by day, it just got worse, getting washed by this kid down the block. And do you want to know what it’s like for him now, to spend the last ten months of a thirty-eight-year career watching politicians destroy his life’s work? It’s like being Stan Getz and trying to play with Alan Greenspan.
***
FROM THE BEGINNING, his relationship to the party was tenuous. He was not so much a Republican as he was a non-Democrat. He had spent the 1950s and 1960s figuring this out in the living room of the philosopher and novelist Ayn Rand, dissecting the principles of free-market theory and railing against government regulation. Rand was the founder of a philosophy called objectivism, which held individualism as the highest ideal and championed the free market. To Rand, the market was not merely an economic system; it was a social contract. People formed relationships in the economy—as colleagues, customers, and employers. To allow government regulation of those relationships would not just be inefficient. It would be wrong.
For Greenspan, discovering Rand was like finding a chorus to back his favorite song. Ever since he had given up jazz to study economics in the 1940s, he had been a proponent of the free market and had made good money putting his ideas to work as an economic consultant in New York. But in Rand he found a new perspective: The market was also moral.
In the world of economics, Rand’s laissez-faire ideas fell under the category of market liberalism, in the sense that the market should be liberated from the government, but in the world of politics, the same ideas landed on the opposite end of the spectrum, in the far extreme of conservatism. When Greenspan merged his economics with Rand, he chose his politics, too.
If it is tempting for Greenspan’s allies to downplay his connection to Ayn Rand—who is widely regarded as an extremist, even by conservatives—or chalk their friendship up to youthful enthusiasm, it should be noted that Greenspan was a fervent acolyte of Rand for nearly thirty years, well beyond his youth. In fact, as late as 1966, the 40-year-old economist published an essay titled “Gold and Economic Freedom”in one of Rand’s journals, in which he denounced government regulation, arguing for the elimination of taxes, the end of what he called “the welfare state,”and the abolition of the Federal Reserve as we know it.
“Stripped of its academic jargon,”Greenspan wrote, “the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation.”
Barely two years later, Greenspan went to work for Richard Nixon. His friend Lenny Garment had taken a job in Nixon’s presidential campaign and invited Greenspan to meet the candidate. It didn’t take long for Greenspan to impress Nixon with his intellect. According to someone who was present during their first meeting, Greenspan dominated the conversation, regaling Nixon with ideas about reducing government and restraining the budget, and by the time the two men parted company, Nixon knew he wanted Greenspan on board. In fact, within only a few weeks, Greenspan had become Nixon’s domestic-policy coordinator, spending a portion of each day combing through newspaper editorials and policy papers, looking for ways to infuse the campaign with his own values. Each evening, he would prepare a stack of paperwork to be sent to Nixon’s plane or hotel room, and Nixon would sort through the material and incorporate it into his platform.
According to Nixon’s research coordinator that year, Marty Anderson, Greenspan applied his conservative principles to anything and everything he saw. “He was involved in everything,”says Anderson. “Energy, agriculture, across the board. Every single piece of policy that a president deals with.”In addition, says Anderson, Greenspan became closely involved in campaign strategy. “He had one of the few powerful computers in New York City, and he did some very interesting analyses of electoral votes. He did a lot of political things. Alan Greenspan is a very good politician.”
Nixon’s foreign-policy coordinator, Dick Allen, remembers Greenspan the same way. “In terms of raw influence,”says Allen, “he was a resource that was matched by almost no other. The guy has a concept of how the world should be organized, and he pursues it relentlessly.”
One of Greenspan’s top priorities that year was to get Nixon to endorse an all-volunteer army, a radical idea at the time. To Greenspan, the draft was just another form of government intrusion and should be abolished. When Nixon adopted the policy—remember, this was at the height of the Vietnam War—his numbers went up. As Greenspan’s friend Charles Brunie remembers, Nixon never forgot whom to thank.
“In December 1968, I was sitting in the Barcalounger in Alan’s office, and I heard him on the phone,”says Brunie. “He was very deferential, and I said, ‘That doesn’t sound like Alan.’ When he got off, he came out, and he took those thick glasses off so I could see his eyes were kind of bugged out, and I said, ‘Alan, may I ask who that was?’ He said, ‘That was the president-elect. It was Nixon.’ And I said, ‘May I ask what the conversation was about?’ He said, ‘Well, he offered me any job I wanted in Washington.’ I said, ‘Really? Why did he do that?’ He said, ‘I wrote the speech for him in favor of the volunteer army, and the president said that was the margin of victory.’ “
Greenspan turned the president down—not for lack of interest, he told friends, but because he sensed that Nixon was intimidated by him, and it seemed unlikely that they would work well together. But when Nixon’s presidency began to collapse in the summer of 1974, Greenspan saw an opportunity. Hurrying back to Washington, he arrived at Vice President Ford’s office, uninvited and unannounced.
“I got word from my secretary that Alan Greenspan was there and he wanted to talk to me,”recalls Ford, who had no relationship with Greenspan at the time but knew him by reputation. “I said I’d be glad to see him, and he came in. He said, ‘Mr. Vice President, you’re probably going to be president in a couple of days, and if you are, I’d like to be on your team.’ Well, I told him that I couldn’t predict whether I was going to be president at all, but if I was, I would like to have him on my team.”
It was only a matter of days before Nixon resigned, and Ford named Greenspan to the Council of Economic Advisers. At the swearing-in ceremony, his mother stood on one side. On the other: Ayn Rand.
From the outset, Greenspan made the most of his access to the White House and its occupants. In the evenings, he would stretch out on the floor of chief of staff Dick Cheney’s office in the West Wing, resting his bad back and watching the news with Cheney’s assistant, David Gergen, while in Cabinet meetings he would frequently take a seat beside OMB deputy director Paul O’Neill or defense secretary Don Rumsfeld, chiming in on virtually any issue that caught his attention. Technically, he was the president’s economist, but as his friendships within the Ford administration grew, he found that his ideas were welcome on other subjects, too—indeed, on any subject at all.
“I can assure you,” says Ford, “at Cabinet meetings, Alan expressed himself on any subject he had strong feelings about.”
Greenspan soon became involved in Ford’s 1976 reelection campaign, too, reprising the role he had played for Nixon eight years earlier. Still technically chairman of the economic council, he began to spend a large portion of his time on the road with the campaign, advising on both policy and strategy. Ford had fallen thirty points behind Jimmy Carter by August of 1976, and Greenspan was part of the elite circle of aides assigned to put the president back in the race. Touring the country with Jim Baker, Dick Cheney, and Ford, Greenspan was involved in virtually every aspect of the campaign. “He was the substance guy on economic stuff,”says a source from the campaign. “But there was also a feeling that he understood the politics. That’s why he was on the plane.”
In the end, Ford rose from the ashes to make the 1976 presidential race the second-closest of the twentieth century—but it wasn’t enough. In January of 1977, Ford went home to California, and Greenspan returned to his consulting practice in New York. It wasn’t long, though, before Greenspan found a new route to power. As the 1980 presidential race approached and Ronald Reagan seemed poised for the Republican nomination, Greenspan became an informal adviser to Reagan, but he also engaged in a secret dialogue with Henry Kissinger to return Gerald Ford to office. To this day, opinion varies on who conceived the idea for Reagan to nominate Ford as his running mate, but it was Greenspan and Kissinger who almost made it happen.
On the night of July 16, 1980, with the Republican convention in full swing in Detroit, Reagan’s vice presidential slot was still open. Taking a suite on the seventieth floor of the Detroit Plaza Hotel, just one floor above Reagan’s suite, Ford, Kissinger, and Greenspan began a series of secret meetings with the Reagan campaign to establish a “copresidency”between Reagan and Ford. Some on the Reagan team were shocked to arrive at the hotel and discover what was happening.
“I walked into Reagan’s suite at about five thirty,”remembers Dick Allen, Reagan’s foreign-policy adviser. “I asked, ‘Is there anything I can do for you?’ and Reagan said, ‘Well, Dick, what do you think about the deal?’ I asked what the deal was. He told me, and I said, ‘That’s the dumbest idea I’ve ever heard.’ “
According to Allen, the deal was not so much a partnership as a trade. Ford would bring experience and credibility to the ticket, and in return Reagan would surrender an unprecedented amount of control. According to sources present that night, Ford would dictate several Cabinet choices. “Reagan said, ‘Ford wants Kissinger as secretary of state and Greenspan at treasury,’ “remembers Allen.
But that was just the beginning. In addition to naming Kissinger and Greenspan to the Cabinet, the deal would also give them expanded authority—especially Greenspan. “The idea was that the secretary of treasury would have a major part in the whole development of domestic policy,”says former attorney general Ed Meese, who handled the negotiations for Reagan. “It would have been more than just the usual secretary of the treasury as one of the Cabinet people.”He pauses. “I’m not sure how that came out of the discussions.”
The Reagan and Ford camps haggled over the details for hours, trying to make it work, but in the end they could not reach an agreement. According to Allen, Reagan was willing to make concessions to Ford, but the addition of Kissinger and Greenspan killed the deal. Just before midnight, Reagan placed a call to George H. W. Bush’s hotel room and asked him to join his ticket instead. The Bush presidencies were born.
Ford insists that he wasn’t disappointed by the decision, mostly because he wasn’t all that interested in the deal. “I never thought it was practical,”he says. The day after the nomination, he returned to California and a peaceful retirement. Greenspan and Kissinger went home to New York—to the political wilderness again.
***
IN THEORY, the Federal Reserve is not an obvious outpost for political ambition. The chairman of the Fed is almost entirely cut off from politics. That is the trade he must make for the job. In exchange for his own sovereignty, he cannot meddle in the sovereignty of others. That means he has no say on Social Security reform or the Medicare crisis, no role in the budget, no input on the national debt or spending priorities. These are political and fiscal issues. His turf is monetary policy alone. He may have great insight and wisdom about other matters, but he cannot interfere with them. This may seem restrictive, but it is the economic version of the separation of powers—a barrier not only to protect the White House but also to protect the independence of the Fed.
Naturally, that barrier has had all the stopping power of a sieve. Over the years, the temptation to meddle has proven too great for most presidents to resist. Eager to lower interest rates and boost the economy, they have found ways to pressure the Fed, sometimes through friendly overtures and sometimes through outright bullying. “Back in Kennedy’s time,”says James Galbraith, who knew Kennedy personally and served as the executive director of the Joint Economic Committee, “if they wanted the interest rate to come down, [White House economist] Walter Heller would call up [Fed chairman] William McChesney Martin and schedule a meeting. As the meeting date approached, the interest rate would come down. Heller said, ‘We never had to actually hold meetings. We just scheduled them.’ “
What sets Greenspan apart from his predecessors is that he has turned the tables on the White House. When it comes to political pressure, he gives more than he receives. “The Federal Reserve now has the upper hand,”says Galbraith. “Greenspan has abused his position in that respect.”
Because of Greenspan’s conservative background, this may seem advantageous to the Republican Party. It certainly was intended to be. After all, party loyalty was one of the primary reasons Greenspan was selected for the job in 1987. After the failed attempt to conjoin Reagan and Ford in 1980, Greenspan returned to his consulting firm in New York, but he kept a close relationship with Jim Baker, his old friend from the Ford administration. Baker had joined the Reagan administration as chief of staff, then as treasury secretary, and would frequently call Greenspan in New York to run ideas by him. By the time Paul Volcker’s term expired as Fed chair, in August 1987, Baker had just the man to replace him—not only because he trusted Greenspan’s economic ideas, but because he trusted his politics, too.
“The feeling on our part,”says Baker, “was that a president is entitled at some point in his presidency to have his own chairman of the Federal Reserve. And there wasn’t anybody else in America that I thought, or that we thought, would be suitable.”
But Baker was wrong about Greenspan in one respect. Despite his nearly twenty years of partisan work, Greenspan’s loyalty had never been to the Republican Party. It was to conservatism itself. This was a critical difference. When Greenspan looked at the legacy of Reaganomics, he did not see conservative policy. In the course of eight years, Reagan had almost tripled the national debt, from $930 billion to $2.6 trillion. The federal budget had been in the red for an average of $209 billion each year. Some economists found ways to justify these deficits, but Greenspan was not among them. Spending more than you earn, whether you’re a government, a business, or an individual, is a path to ruin, he felt. An ever increasing portion of income must be diverted to interest payments, and the cycle of debt can become inescapable. To Greenspan, it was especially irresponsible to slash taxes when spending was rising. He was no advocate of taxes, but as long as there was high government spending, taxes were a necessary evil: The only thing worse than tax-and-spend was spend-and-don’t-tax.
By the time Greenspan closed up his consulting business in Manhattan and settled into the Fed chairmanship, Reagan’s presidency was in its final eighteen months, too late for radical change. But almost from the moment Reagan’s successor, George H. W. Bush, assumed office in 1989, bringing Baker and Dick Cheney and several of Greenspan’s allies with him, Greenspan set out to correct the fiscal course of Reaganomics. Technically, this was none of his concern. As a citizen, he had the right to his opinions, and as Fed chairman, he even had a right to consider the deficit in assigning interest rates. But he had no right to influence the budget directly.
According to sources from the Bush Cabinet, that didn’t stop Greenspan. He offered the president a deal: If Bush would persuade Congress to raise taxes and tackle the deficit, violating his 1988 campaign promise—”Read my lips, no new taxes”—Greenspan would cut the interest rate and boost the economy in time for the 1992 campaign.
For years, stories about that deal have circulated in political circles, but they can be difficult to pin down. Greenspan has denied any quid pro quo with the forty-first president, and although Bush has offered comments that seem to allude to a trade—”I reappointed him, and he disappointed me,”he told an interviewer in 1998—nobody has ever gone on the record to verify it. This makes the subject somewhat difficult to report. In the course of numerous interviews about Greenspan with Bush appointees, I heard the rumor many times, but no one would go on the record—until I called Nicholas Brady.
Bush’s treasury secretary from 1989 to 1993, Brady is known for his brash and blunt style, and I heard from sources that he felt Greenspan had broken the deal—doing too little, too late, to boost the economy. I wanted to hear that from Brady myself—not only to understand why he might think Greenspan had burned him, but also whether the “deal”had really been explicit. It is one thing to send signals to the White House; it is something else to make a trade. Reaching Brady proved difficult. I called him more than a dozen times last winter, and his secretary told me repeatedly to call back later. But when I finally reached him, Brady didn’t hesitate to talk. I asked about the deal—if he had been disappointed by Greenspan as Bush had been.
“It was very frustrating,”Brady said. “There was an agreement that if the president would tackle the fiscal policy, he would lower interest rates.… He just plain didn’t do what he said he was going to do.”
I asked Brady why he thought Greenspan hadn’t followed through, and he said, “I have no idea. Particularly since that was the agreement.”
“How clear was the agreement?”I asked. “Are you sure that he understood the agreement?”
“He’s a smart guy,”said Brady. “Was it signed in blood? No. Was it discussed thoroughly? Absolutely.”
“Are you surprised at how long he’s made it, if he doesn’t honor these agreements?”
“That’s not my job,”Brady snapped.
“Okay, well, I appreciate it,”I said.
“Righto,”Brady said.
A few hours later, Brady called me back.
“Lookit,”he said, “would you send me the quotes that you’re going to use of mine, because you got going pretty aggressively. I don’t mean I won’t say what I said, but I want to see what I said before I’m quoted.”
“I can talk to you about what you said,” I told him, “but we don’t read back quotes. It’s the first thing you learn in journalism.”
“I was in the government for four and a half years,”he barked. “I think I understand the system. But I mean, you know, you might as well get it right, because if you get it wrong, I’m going to write a letter to the editor, stuff like that.”
I offered to give Brady the gist of his comments to think about, but he interrupted me: “I’m not interested in the gist. I’m interested in specifically what I said.”
“Are you backing off from the interview?”I asked.
“I’m not backing off from the interview, I’m backing off from your interpretation of the interview.”
“Well, unfortunately, after you do an interview, it’s not protocol to go back and take it back,”I said.
“Unless it’s inaccurate.”
“The accuracy is in the transcript,”I told him.
A few hours later, I got another call from Brady’s secretary, asking for my mailing address; then, that afternoon, I got a third call from Brady, then another, into the evening and through the next day, trying to remember exactly what he’d said and then back off from it.
Finally, I arrived at work one morning and found this message on my answering machine: “Wil, this is Nick Brady. I gather you’re not willing to send me the transcript of my conversation with you. In that case, I would like to withdraw the interview.” Clearly, Brady was having second thoughts. However important his story was, it seemed obvious that he expected to pay a price for telling it, for implicating Greenspan in an ethical breach and possibly a quid pro quo. But Brady’s story wasn’t unique. I had also heard, from former Clinton adviser Dick Morris, about a quid pro quo between Greenspan and Bill Clinton in 1993. Again, the issue was taxes. In 1993, a few months after entering office, Clinton proposed that the federal income tax should become more progressive, putting more burden on the rich. He wanted to raise the upper tax bracket from 31 percent to 38 percent for people making more than $200,000 per year. To Clinton, this was only fair, an equalizing measure. But to Greenspan, it would have been the essence of unfairness, just the kind of policy that he had described in 1966 as “the welfare state,”in which “governments confiscate the wealth of the productive members of a society.”According to Morris, Greenspan and Clinton “made, together, an explicit or de facto deal.”If Clinton would raise revenue through a different tax—one that affected everybody, not just the rich—Greenspan would cut the interest rate and give the economy a boost.
As Morris remembers, Clinton felt compelled. “Clinton told me that the top-bracket increase would not appease Greenspan,”says Morris. “Greenspan was the word that he used. He said, ‘Greenspan wants to force me into raising a broad-based tax, because only my political blood will appease him.’
“I think [Clinton] felt that the top priority was to do whatever he had to do to bring the short-term rates down through Green-span, and unless he incurred political harm, he wouldn’t be able to do that.”
Morris adds, “You figure out what Greenspan wants, and then you get it to him.”
***
BY THE TIME George W. Bush assumed the presidency in 2001, Greenspan’s political power had reached its apogee. Under a Democrat, the budget was balanced, the economy was strong, and interest rates were low. Whatever Greenspan’s personal history, it was clear he was not merely partisan any longer. If anything, being at the Fed had freed him of that burden. No longer bound to either party, he could foist his will on both. He could punish the first Bush administration for Reagan’s deficits and reward Clinton for the surplus. He had overstepped the bounds of his position, sure, but in doing so, he had set the stage for an unprecedented level of growth. Nobody—certainly not the Democrats—was prepared to challenge his back-door influence. Not when they could take credit themselves.
But George W. Bush was well aware of Greenspan’s power, and when he picked his new treasury secretary, he had Greenspan in mind. Paul O’Neill’s relationship with Greenspan extended back to the Ford administration, and Bush knew from his father’s experience that a strong connection to the Fed would be a political asset. Among other things, Bush hoped that Greenspan would support his radical tax-cut proposal. During the campaign, Bush had promised to return the budget surplus to taxpayers, and he wanted Greenspan to support the idea. Even before O’Neill was confirmed, he began to meet with Greenspan, selling him on the policy. Politically, Greenspan agreed with Bush: It was better to return the tax revenue than to increase spending. But he also felt that the tax cuts should occur only if the budget surplus remained. If the surplus turned into a deficit, there would be no money to return. On this condition, Greenspan signed on. Speaking to Congress in January 2001, he said, “Tax reduction appears required.”
Nothing could have surprised Clinton’s economic team more. Not only had Greenspan gone public with his support, but his support seemed to contradict his own principles. The deficit might be gone, but the national debt was still enormous. Based on everything they knew about Greenspan, it was stunning that he would endorse tax cuts rather than paying down the debt.
“When he made those statements in January 2001, I was confident that it had been misreported,”says Jeffrey Frankel, who served on Clinton’s Council of Economic Advisers from 1996 to 1999. “It was so obviously supporting the administration tax cuts and what I would have thought he, Greenspan, would view as fiscal irresponsibility that I initially asserted confidently—in public—that he couldn’t really have said those things. And of course, he did!”
Greenspan’s support for the tax cuts had been conditional—no surplus, no tax cut—but when O’Neill tried to hold Bush to the agreement, he was thwarted at every turn. As O’Neill told the writer Ron Suskind in the book The Price of Loyalty, Bush said, “I won’t negotiate with myself.”In the end, Greenspan’s deal was not honored.
As the surplus turned to deficit, O’Neill left the administration in anger and went public about the broken deal with Greenspan, but Greenspan has remained quiet. In a rare slip during a speech that he gave in London this February—in perhaps the greatest-ever example of damning with faint praise—he said, “The voice of fiscal restraint, barely audible a year ago, has at least partially regained volume.”Two weeks later, he told the Senate Banking Committee that it has become “imperative to restore fiscal discipline.”But so far, that’s been it.
In one sense, as Greenspan winds down his final year in office, he seems beaten at his own political games, a victim of one of his games gone bad. But in another sense, he has more power now than ever. For the first time in eighteen years, there is nothing left to lose, no reappointment looming over his head, no political allies to defend. The only thing left to protect is his legacy—but to do so, he may have to speak.
***
EVERY MORNING, Greenspan rises from bed at about 5:30 a.m. and feels the rush of his mind coming awake with the rising sun. He has no need for coffee or tea. As far as he can tell, within two minutes of waking up his mind is at full capacity, and the rest of the day is a steady decline from there. By 8 p.m., when he leaves his office to return home, his IQ will have dropped some twenty points and the answers will not come so quickly. Morning, then, is his finest hour, and Greenspan doesn’t want to waste it.
That means he can’t go in to work or speak to his friends and family. To squander his best moments on human interaction and bureaucratic management would be, to him, a mistake. Instead, Greenspan heads straight to the bathroom, turns on a large fan to create a blast of white noise that blocks out sound, draws a hot bath, strips off his clothes, and settles into the water for at least an hour and sometimes two, until the skin of his body has begun to pucker and prune and he has drained his best ideas onto the notepad beside the tub.
Most of the time, what Greenspan writes in the tub are speeches and public testimony. It is important to use the right kind of pads and pens for this; often, while writing, the pad will slip from his grasp into the water, and if he has used the wrong type of pen—say, a fountain pen—the ink will bleed from the paper and his ideas will be lost forever. If he uses the right pen, like a Bic, he will be able to pluck the paper back out of the water without damage, stuff the pad into his briefcase, and deliver the pages to his secretary to hang dry and transcribe.
By then, he will have found just the right combination of words so that later in the day, or later in the week, when he ambles down the aisles of Congress to deliver another one of his reports, his message will be exactly as he intends—as clear or as confusing. Which it will be, only he knows. Greenspan has a choice: He can meddle in politics one more time, speaking out against the deficits and fighting for fiscal responsibility, or he can remain quiet and protect his old friends, leaving his principles behind.
Wil S. Hylton is a contributing writer at The New York Times Magazine and the author of Vanished. His complete archive is available on Longform.