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The Buck Starts Here

Chairman of the Federal Reserve Board Alan Greenspan spent the first part of his life making music. Now the second most powerful man in the world makes markets move.


Now nearing the last year in his third term as head of the seven-member board of governors of the Federal Reserve System, Alan Greenspan has frequently been called the most powerful person in the nation, second only to the president.

The claim is not without some validity. As chairman of the Federal Reserve, Greenspan guides the nation--and by extension the world's--monetary policy, adjusting interest rates which change the cost of borrowing money.

He has been credited with engineering, or at least preserving, the current American economic expansion. Markets tremble and plunge at a mere phrase from him.

And in addition to his economic wizardry, he is a social butterfly with a quick, if dry, wit and a decent tennis backhand. Behind the chief's desk in the whisper-quiet halls of the Fed sits Alan Greenspan.

The buck starts here.

The Money Man

Because money managers across the globe, as well as everyone on Wall Street, pay such close attention to his words, trying desperately to parse them for indications of future policy moves, Greenspan guards his words carefully. He is notoriously stingy with full on-the-record interviews to the media.

In December 1996 with the stock market soaring to record highs, Greenspan spoke at a Washington dinner party, wondering aloud if the flow of money into the stock market was simply "irrational exuberance."

The next day, fearing that his comment was a harbinger of a forthcoming increase in interest rates, the Dow Jones industrial average fell 140 points.

The speculation was wrong, and the interest rates remained unchanged.

Greenspan, who will give the keynote address at today's Commencement, will likely not speak in obscure terms to the graduates, but Harvard's Class of 1999, should not expect investment tips either.

"I don't know what he will talk about, but I expect it will be about the economy and monetary policy generally, rather than making a policy announcement here," Baker Professor of Economics Martin S. Feldstein '61 wrote in an e-mail message.

Feldstein will serve as Greenspan's faculty escort during the Commencement activities, a duty he says the University selected him to perform because of their mutual interest in economic policy.

Feldstein, who like Greenspan was appointed to high office by President Ronald Reagan, counts himself among the legions of people who think highly of Greenspan's economic handiwork.

"I think his policies have been very good," Feldstein wrote in his e-mail message. "He dealt wisely with bringing down inflation, he responded well to two financial market crises (the 1987 stock market crash and the 1998 credit crunch), and he has helped to advance important improvements in deregulating the financial sector."

"I think he deserves a great deal of credit for the successful performance," Feldstein adds. "Without the low inflation we could not now have the kind of strong growth that the economy is enjoying."

Getting There

Alan Greenspan was born in New York City on March 6, 1926. His father Herbert was a stockbroker. His mother Rose worked in retail.

His parents divorced when Alan was four, and he was raised by his mother and maternal grandparents.

With little money, his mother struggled to provide opportunities for her son's inclinations, cultivating his early interests in numbers, baseball, tennis and music--all things which would stick with him throughout his life.

Indeed, more than economics, music seems to have been a primary love in his early years.

After graduating from high school, Greenspan attended the prestigious Juilliard School and then, in that golden age of Jazz, joined a band as a horn player.

"He showed up one day...and we needed a tenor saxophonist who also played clarinet," says Leonard Garment, a Washington lawyer who used to play with and manage the band. "He seemed competent and reliable, so we hired him."

Greenspan's love of numbers spilled over into his life of the band.

"He is Mr. Prudence himself. He took care of the books of the band, which, not surprisingly, balanced," Garment says.

The band toured the country, but Greenspan knew that someday the music would end, and he planned accordingly.

After a year in the band he entered New York University's (NYU) School of Commerce, graduating summa cum laude with a degree in economics. In 1949, he got his masters from NYU and later transferred to Columbia to work on a doctorate.

When his funds ran out, he with drew from school and went to work for the National Industrial Conference Board, a pro-business advocate. He would return to NYU and receive his doctorate in 1977.

In 1952, Greenspan married Joan Mitchell, a painter. While they stayed together for less than a year, Joan Mitchell introduced him to Ayn Rand, the author of The Fountainhead and the proponent of the objectivist philosophy of which Greenspan became a follower.

On the Path to the Fed

By the mid-1950s Greenspan and bond trader William Townsend opened a consulting company, Townsend-Greenspan. The company did its work discreetly, making predictions for large businesses and financial institutions.

The quiet venture was quite successful, making Greenspan a wealthy man.

In 1974, Greenspan was named by President Richard M. Nixon to chair the Council of Economic Advisers, a post he did not fill until two weeks before Nixon resigned.

While President Gerald R. Ford could have rescinded the nomination, he chose not to, and, according to the Washington Post, the two became good friends.

Ford credits Greenspan's time on the road with the band for honing his sensitivity to the sentiments of different people--an excellent talent for government.

This is a sentiment affirmed by CNN correspondent Judy Woodruff, who is a friend of Greenspan and his current wife, NBC News' chief foreign affairs correspondent Andrea Mitchell.

"Obviously he's very smart about all things economic, but beyond that he's just a very keen observer of people," Woodruff says. "He watches everything."

During the Carter administration, Greenspan returned to his private company, but the Reagan administration drew him back into the political fold, first with a post heading the president's Commission on Social Security Reform.

In 1987, Greenspan was promoted to chairman of the Federal Reserve, where he followed the general course set by his predecessors of stabilizing the economy by reducing inflation.

But there were hitches in those plans. In October 1987 the stock marketed plummeted 508 points.

Greenspan announced that the Fed was prepared to make cash available to the financial markets, and outside of that tried to maintain the status quo.

Six months later things were more or less back on a stable course and Greenspan returned his focus to decreasing inflation.

That focus involved raising interest rates in the early '90s which, in tandem with the economic tensions caused by the Persian Gulf War, sent the nation into a recession which some say cost President George Bush the 1992 election.

In contrast to the rocky relationship he apparently had with the Bush administration, Greenspan reportedly has a close working relationship with members of the Clinton administration--including strong ties to and mutual admiration of former treasury secretary Lloyd Bentsen, outgoing treasury secretary Robert Rubin '60 and incoming treasury secretary Lawrence H. Summers, who is also the former Ropes professor of political economy at Harvard.

Greenspan even sat in the president's box next to first lady Hillary Rodham Clinton at Clinton's first State of the Union address.

Greenspan has his share of critics, including some who charge that he has succeeded more by style than substance.

"To them, these traits don't mask the shortcomings in a man who got to be Fed chairman in much the way Clinton got to be president--by impressing people with his intelligence, working to make people like him and holding his finger to the wind," an April 1995 Washingtonian magazine article wrote of Greenspan.

Despite the general praise that has been lavished on his long tenure as Fed chair and the booming economy that has resulted, a renewal of Greenspan for another four-year term is not yet certain. And this is only a matter of timing.

His third term runs out in the middle of a presidential election. According to one scenario, Clinton may leave the decision up to Vice President Al Gore '69. And if the Democrats regain control of the Senate, they may want to have someone from within the party at the helm of the Fed.

And if the presupposed Republican contender Texas Governor George W. Bush is elected, bad blood from his father's presidential tenure could spoil another Greenspan term.

While the Fed was set up to be an apolitical organization to control the nation's money, it far from upholds that aspect of its task--the position has become intensely political, many say. Greenspan acknowledges the political nature of his job arguing that it can be dealt with appropriately as a matter of style and personality.

"I think you can deal with people in one of two ways, either by force or by persuasion," he told the Los Angeles Times in a 1991 interview. "If you can't deal with them by persuasion, you're not as effective. And I don't enjoy confrontation, to tell you the truth."

Social Butterfly

For all of the reserve Greenspan demonstrates in his public duties, his private life is more active--primarily involving the ritzy social circles of Washington and New York where Greenspan and his wife have extensive contacts.

In the 1970s he dated ABC News correspondent Barbara Walters. Before that, Greenspan had been paired with Senator Kay Bailey Hutchison (R-Texas).

Greenspan and Andrea Mitchell had a courtship that spanned nearly 12 years, and friends say the couple, who married in April 1997 are remarkably close.

"[They are] romantic, I guess they are still newlyweds," says Woodruff, who with her husband, journalist Al Hunt, often socialize with Greenspan and Mitchell. "They know each other very well--they are just a fun-loving couple that complement each other beautifully. She reads his mind, and I think he probably reads hers. They are just very dear, dear people."

That closeness does not extend to their professional lives in which the couple intentionally avoid any overlap between Andrea Mitchell's journalistic duties and Greenspan's area of expertise.

"He keeps his work very private and we lead very separate professional lives," Andrea Mitchell says. "We draw very clear lines. I think it's worked very well because I've been able to pursue a lot of my interests in foreign policy and in political coverage while avoiding any involvement in [the] reporting of economic issues. It's been a very carefully constructed firewall."

And for all the power that he wields Greenspan is said to showcase little of that power. Until he was married he was taken to work from his apartment in the Watergate (where former Senator and Republican presidential candidate Robert J. Dole and his wife Elizabeth lived) in a government-provided Mercury sedan.

Andrea Mitchell says both of them are early risers, with Greenspan spending up to two hours every day poring over work in his bathtub.

"He find that he is sort of sharpest and most focused in the early morning," she says.

Words of Wisdom

Details are few about what Greenspan intends to discuss in today's address.

Mitchell says her husband has provided her with few details but was pleased to be honored by the Harvard invitation, and the honorary degree that comes with it.

"I don't know the substance of his speech. I can only say that it is obviously a senior honor to be at Harvard and it's very clear he's looking forward to it with a great deal of anticipation," she says. "He feels honored, I'm sure, to be a part of a memorable occasion for all of the graduates and their friends and family."

Woodruff guesses that students may perhaps get a does of his wit.

"He has a wonderful sense of humor," Woodruff says. "Let me clarify that. He has a very dry sense of humor. He's someone who's always got the reaction that no one else would every think of. All I know is that I always laugh when I'm around him in a social setting."

His desk is said to be adorned with a plaque appropriate to his position: "The Buck Starts Here!" And so it will be for the former band-man-turned-economist-turned-commencement speaker. This unusual and powerful man has never had a problem with creativity.

Just don't ask about irrational exuberance.

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