Musical Chairman

Like his old boss, former President William Clinton, former Fed Chairman Alan Greenspan knows his way around a tune, both men sharing a well known love for jazz and playing the saxophone. Lately the former Chairman has been demonstrating a related talent for which he is also known, picking up a new tune when the music changes.

With his new book out in the US on Monday (m* readers in NYC can see the Chairman at the Union Square Barnes & Noble at 7pm) and front page appearances in the FT and the WSJ over the weekend, Greenspan has adapted to the new reality of the global credit environment he personally did much to foster rather well.

Speaking to the FT, Greenspan admits the housing market was in a bubble and that home price declines are likely to surprise to the downside. He also compared the yield pickup of asset-backed structured securities over treasuries to cocaine and the current commercial paper crunch to the '80's savings and loan "disaster".

As the recently departed Chairman after nineteen years of the institution charged with overseeing the health of the nation's banking system, price stability, and the path of economic progress, m* naturally wonders when exactly the Chairman came around to these conclusions?

Greenspan makes an odd celebrity. There is his age, beyond easy figuring but well into the wise old man category, the easily caricatured egghead visage with small eyes appearing behind enormous glasses, and that monotone warbling of un-intelligible but clearly highly intelligent verbiage. And he is an economist after all.

Bubble vision pumped him up of course, even while they made fun of his pending appearances with superhero antics and pre-game-show style briefcase analysis. But Greenspan more than anyone contributed to their mutual success, promoting and sustaining a bull market state of mind and an equity culture that swept the globe during his tenure.

Chairman Greenspan held the scepter of power among economic seers across nearly two decades and three presidential administrations, with a Chance the gardener-like talent for evading criticism and responsibility, while cultivating a public acceptance of the mystery of his wisdom and that of his institution.

Greenspan has always been the court's jester, adapting his performance to stay in the graces of whichever court is currently in power, as when he abandoned the successful fiscal conservatism of the Clinton/Rubin era for the budget busting Bush tax breaks for the wealthy, or filed away "Gold and Economic Freedom" to later preside over a succession of asset bubbles fueled by too cheap money and lax oversight.

Greenspan drank the Kool-aid of the internet’s new paradigm for productivity, and flinched in the face of post bubble deleveraging, fearing a Japan-style deflationary spiral was at hand. He missed the rampant speculation and rash lending that was driving up housing prices at unsustainable rates, and encouraged home loan borrowers to gamble with short term adjustable rates (and sub-prime mortgages) shortly before the housing peak and an impending rate hike cycle.

Greenspan may have gotten some of the basic calls dead wrong, or simply been working from a different set of priorities than many of his critics assume. But one thing he's always gotten correct was the importance to the role of setting the tone and massaging expectations. Greenspan understood that the true power of the Fed and its Chairman is far less than commonly perceived, and that inflated perception enabled him to wield far more power than he might have without it. That is why he was called “the Maestro.”

However the unraveling of his decisions and their long term impact on savers and the purchasing power of the currency brings to mind another image from film, that of the powerful wizard revealed to be just a fallible man behind a curtain with a distortion microphone and a sputtering smoke machine, his omnipotence an illusion. But ever the showman, Greenspan manages to somehow stay in the public consciousness long enough to sell a few books for his publisher.

It must have been a light weekend on the fashion-news front as the WSJ’s Weekend Edition led with what was technically a Greenspan "book review," making sure to tell us they did not speak to the Chairman but rather, almost blog-like, “bought a copy at a bookstore in the New York area.” Perhaps the new owner at the Journal was not happy at paying the Chairman’s speaking fee. Over at Pearson however, where they’ll no doubt be waiting for the paperback, someone got him on the horn and the quotes are juicy.