Alan Greenspan - 28 March 1997

I wonder what it must be like to be, well even called, the most powerful man in the world, so that you have to think three times before opening your mouth in public.

Once the man I have in mind was getting into his golfing togs when his partner arrived in the locker room and said, “How are you?” Only half in jest, he replied, “I’m not allowed to say.”

Of course the question of who among the world’s titans is the most powerful would involve us in tiresome wrangles about defining power and greatness, and in no time somebody would be voting for the President of China against, say, Rupert Murdoch.

Let’s have a little guessing game about his identity from these clues. He’s slim, medium height, 71 years old. He can be said, according to your taste in cruelty, to have thinning hair or be bald. He wears always, everywhere, maybe to bed, a dark suit, a nondescript dark tie, loafers.

We, we the people, rarely see him walking or standing up. We always see him sitting down, bent over, testifying before a committee of Congress.

Reading a text, he’s too cautious to improvise. He has thick, not quite beer-bottle glasses, and a long, curling, half-moon of a mouth. He looks, in fact, like an amiable, sleepy elf in an old Disney movie – not by a mile what Central Casting would look for to play the most powerful man in the world.

His name is Alan Greenspan. He is the chairman of the Federal Reserve Board, an appointment that is at the disposal of the President of the United States. But once appointed, he is beholden to nobody.

The last time I was in London, an old friend of mine, whom anybody would call educated, said, “We’re always hearing about the Federal Reserve. What exactly is it?” I could have short-circuited a long, difficult explanation by saying, “He’s the man who decides what you’re going to pay for a bank loan or for a carton of milk next time you go shopping.”

Well let’s say, as briefly as possible, without over-simplifying, how it came about and what it does. Just 90 years ago, there was a panic in the world of banking and business, a world that was run in this country by what they called “the Trusts”,combinations of companies in the same business – the Oil Trust, the Railroad Trust, the Sugar Trust – each run by a board of trustees that, well, eliminated competition and controlled the national market.

The government was a majestic but helpless onlooker until the 1907 panic when it came out that the Sugar Trust had swindled the government out of millions of dollars in customs duties. The president, Theodore Roosevelt, lashed out at the trusts as no previous president had done in a famous speech, a frightening speech to the men who’d sent him to Washington because he was “too much of a reformer” and a “nuisance” as Governor of New York.

Roosevelt attributed the panic to the speculative folly and flagrant dishonesty of a few men of great wealth.

When Teddy Roosevelt denounced anybody or anything, he didn’t leave it at that. He did something. He asked for laws that would “enforce the performance of duty by the man of property towards the man who works for him, by the corporation towards the investor, the wage earner and the general public.”

But there were good trusts as well as bad, and most trusts were so cunningly set up (if not in broad daylight at least in the twilight zone of the law) that the trusts and their lawyers defeated Teddy Roosevelt.

But he appointed a commission to investigate banking practices and eventually, six years later, there was created something called the Federal Reserve System. It set up in the beginning eight federal regional banks acting as central banks for their part of the country, a board in Washington of seven members that could dictate the reserves the regional banks must maintain against their deposits.

The board has many powers, but there is one which affects everybody in the country, not to mention lots of companies and shopkeepers and workers even overseas.

The Chairman of the Federal Reserve alone – no president, senator, congressman, not even the secretary of the treasury – he alone can decide the interest rate that the regional banks can charge their borrowers. And, of course, any change in their rate is soon passed on to everybody from the regular banks to a man buying a car, a family with a house mortgage.

Since Alan Greenspan has been in the chair, so to speak, it seems to most of us that his great aim, his passion, has been to save the country from the demon inflation. There’s been miraculously little inflation for the past five, six years, but for six years – Mr Clinton likes to say only since he came into the White House – the American economy has been roaring along under full steam; and when that happens for long, the experience has been low unemployment, higher wages, increased demand for everything, more spending by everybody, more confident borrowing, and, inevitably, a rising tide of inflation.

Mr Greenspan is credited, on account of his hawk-like attention to the money markets, with keeping interest rates low and somehow stifling inflation. So all he has to do to scare the markets and terrify the stock exchange is, quite frankly, to fall out of his professional jargon and fall into the English language.

He never holds a press conference. He won’t be interviewed. He does from time to infrequent time make a speech. He made one last December. So abstract and dense is Mr Greenspan’s public language that I don’t believe anybody at that dinner speech could possibly recall a sentence. But everybody could recall two little words. He suggested that Wall Street might possibly be enjoying a little “irrational exuberance”. Next day the industrial average on the New York Stock Exchange fell 166 points. No wonder, he’s (as he says) not allowed to tell us how he’s feeling.

Apparently he’s been obsessed with numbers since he could toddle, being shown off to astonished friends by his mother when he could juggle two sets of three-digit numbers in his mind.

I have to say when I first heard this, I must have been the only reader who was not impressed. When I was about 10, the last period in school on Friday afternoons was supposed to be a rest from work. “Play a little game, children. Ready boys?” said the lady. All my teachers were female; all the men were off in Flanders or Mesopotamia. “I buy two loaves for seven pence each. I give the grocer half a crown. Triple the amount of change he gives me.”

I tell you, doing mental arithmetic with LSD – which, I rush to say, meant pounds, shillings and pence – was quite a tough game. But it did make the decimal system (when you encountered it) a piece of cake.

However, unlike most of his countrymen and women that I know, Alan Greenspan was a whiz-kid at figures, and some perceptive uncle is bound to have said at one time, “Alan, when you grow up, if you go on like this you’ll get to be Chairman of the Federal Reserve.”

Well so he did. So he is. And so acutely aware he has to be of his huge, undefined power over the money markets and every business and person that depends on them that the sort of English he uses before Congressional committees is like this. This is an actual passage from his testimony, "The arguments over the issue of our money standard have mirrored the deliberations on the manner in which we have chosen to govern ourselves and, perhaps more fundamentally, debates on the basic values that should govern our society."

A friend who won the Nobel Prize in economics says, admiringly, “He has mastered the art of meaningless verbiage.”

So why should he now come out of the twilight into the open? Why are we talking about him? Because on Wednesday morning last, he made headlines. Even the New York Times gave him one of its rare two-column headlines, "Federal Reserve lifts a key rate. First rise since 1995". What had he done? He raised the rate of interest on overnight loans between banks by one-quarter of one per cent. It was a stone dropped in the pond. A very small stone, but it will cause ripples nonetheless.

Apart from the increases that are inevitable on goods and services, there’ll be lots of institutions that will express concern for their own solvency, and, sending you a note of regret, will tell you they’ve been forced to put up their prices – the airfare rate, say.

And how about the percentage charged on your credit card debt? Credit card companies live by the delinquency of their customers and, much to the delight and the prosperity of the credit card companies, the average American family today owes them at the end of each year $3,500.

By the way, there are one or two other things about Alan Greenspan I could have mentioned – he’s left-handed, he plays a fair game of tennis, he’s crazy about baseball (numbers again). Golf? No man should be required to declare in public the quality of his golf game.

The only person I know who is about a 25 handicap, yet made a point of including in her biography the phrase “expert cook and golfer” is a movie star whose great acting speciality was playing delicate, beautiful, sensitive English roses. In life, she was a tough, thigh-slapping comic.

As for Alan Greenspan, he went to the Julliard Music School. He played as a young man, for two years, clarinet and tenor saxophone in a jazz band. I didn’t mention these things because I knew that if I had, you’d have spotted him right away.

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