|By MARTIN CRUTSINGER, AP Economics Writer|
In an interview Sunday with The Associated Press, Greenspan reflected on his book, his Fed tenure and the risks that still endanger the financial system. Relaxed and looking fit at 87, he spoke for an hour in the sunroom of his house overlooking a wooded hillside of
Surrounded by books of presidential and financial history, Greenspan acknowledged some errors of judgment as Fed chair. But he said he saw no reason to downgrade his own assessment of his tenure.
"Our record was fairly good," he said.
He expressed relief at having finally ended an intense 18 months of work on his book. Now, it's on to talk-show chats with the likes of
Greenspan offers high praise for
He says he still plays tennis regularly — singles as well as doubles. And he seems as much a man of the 21st century as he is of the 20th: In search of his iPhone, he twice asked a staffer where it might be.
Reaching back nostalgically to the Republican administration of
It didn't hurt, Greenspan said, that the Democratic speaker of the House,
Here are excerpts of the Greenspan interview, edited for length and clarity:
Q: You write that you were shaken by the 2008 financial crisis because of the failure of one of the pillars of a stable financial market — "rational financial risk management." What did you discover in your research for the book about this issue?
A: Fear and euphoria are dominant forces, and fear is many multiples the size of euphoria. Bubbles go up very slowly as euphoria builds. Then fear hits, and it comes down very sharply. When I started to look at that, I was sort of intellectually shocked. Contagion is the critical phenomenon which causes the thing to fall apart.
Q: When you published your last book, "Age of Turbulence," in 2007, you were being hailed as a "maestro" of the global economy. Then the worst financial crisis since the 1930s erupted. Your policies as Fed chair were blamed for sowing the seeds for that crisis. How did the criticism affect you personally?
A: I've been around long enough to know that a good deal of the praise heaped on me I had nothing to do with. The only thing I did object to was the fact that where the criticism was actually wrong. Did it bother me? Of course it bothered me. But I've been around long enough to have ups and down. So you get over it.
Q: With the knowledge you gained from the financial crisis, has it changed your own assessment of how well you performed as Fed chairman?
A: The real question is, should I have done something different? And the answer to that question is no. Did we make mistakes? You bet we made mistakes. But I thought our record was fairly good. Remember, we stepped in, probably at just the right time after
Q: A lot of criticism centers around the failure of the Fed and other regulators to deal with the explosion of subprime mortgages, which were packaged into securities that then turned bad and were at the center of the troubles. Should the Fed have handled subprime mortgage regulation differently?
A: The problem is that we didn't know about it. It was a big surprise to me how big the subprime market had gotten by 2005. I was told very little of the problems were under Fed supervision. But still, if we had seen something big, we would have made a big fuss about it. But we didn't. We were wrong. Could we have caught it? I don't know.
Q: You're not a big fan of the Dodd-Frank Act (the 2010 financial regulation law that aims to prevent another crisis). Why not?
A: It was written politically, in a way that the regulators get the responsibility to solve the problem. There is a whole list of things the act wants done, and it specifies how individual regulators are going to solve the problems. Regulators are now required to do vastly more and to square it with other agencies.
Q: You got to know
A: The one thing about Larry is that we had breakfasts a couple of times a week for years. And never did a word get out. Those were important meetings. You get a certain trust for somebody. I know Larry's shirts stick out the back of his belt. Who cares? The guy is very smart, and he is unquestionably qualified for most any job you can think of. But then so is Janet. There were times when I came to her and I said, 'I don't understand what this academic is saying.' And she would explain it to me. That is a valuable resource. She is very sharp.
Q: On a more personal level, what books are you reading that you would recommend?
A: "Lords of Finance" is a very excellent book. He (
Q: Do you admire Coolidge?
A: Yes. I always have. He had his problems. It is a very interesting period of American history which I don't fully understand.
Q: Any other books you would recommend?
A: "The Battle of
Q: You're famous for your love of delving into the minute detail of economic statistics to help track the economy. One of your favorite statistics has been railroad boxcar loadings of autos and other manufactured goods. Are you still following that type of information?
A: Let me put it this way: When (the federal government) stopped publishing data a couple of weeks ago, one thing I had to tell what was going on with the economy was car loadings.
Q: Should the Fed start reducing its
A: I've tried to stay away from specific comments on Fed policy, for one good reason.
Q: What advice would you give Yellen, who has served the Fed as a board member, president of the
A: I had a learning curve on a lot of different aspects of how the Fed operates. Janet clearly doesn't need that.
Q: The size of the Federal Reserve's balance sheet stands at a record
A: My basic concern is that we have to rein this thing in well before the demand for funds picks up and makes it very difficult to rein in. (Inflation) is not immediate. It is down the road. But historically, there are no cases where central banks blow up their balance sheets or where countries print money which doesn't hit (with higher inflation).
Q: You write that our highest priority should be to fix our broken political system. How?
A: Unless you are willing to compromise, society cannot live together. What is happening now is an increasing proportion of positions are getting beyond the point where the system can effectively hold together. I am concerned about it. It's not long ago when a
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