Alan Greenspan - The Man Who Broke America | A Biography

[Applause] by 2008 the world's strongest economy has grown to a halt with dozens of banks on the verge of collapsing and they are losing their jobs and these firms are going to go out of business and he's nuts they're nuts they know nothing the housing bubble catches wall street by surprise and a panic soon spreads like a virus with the world's economy reaching a stepping point this is the most severe global recession since the great depression but by all measures it's never supposed to be this bad after all the u.s federal reserve was set up so crises like this magnitude don't happen alan greenspan the man in charge of the federal reserve may have led america directly into the storm throughout his 18-year tenure he has more power over the american economy than any us president he's known as the man who knew as a result of that cultish influence the federal reserve has become the house of greenspan and the world is never the same [Music] alan grinspan is born to a well-off jewish family in 1926. his father herman greenspan is a stockbroker during the roaring 20s but just three years after alan greenspan's birth the stock market collapses followed by the great depression losing everything in the market herman greenspan abandons his wife and child during a time when divorce is unusual and culturally frowned upon the young alan greenspan loses the father figure in his life as an only child with a busy single mom and desperately trying to escape from reality he buries himself in books and numbers [Music] he was a gifted kid he enjoyed adding large numbers in his head just to pass time but it was apparent that he had a father issue he looks for a father figure by reading history books he became fixated on the great industrial titans of the 19th century to prove to his father that he can be exceptional without him greenspan searches for something at which he can be the best in the world by the time he turns 16 he finds that thing jazz in high school alan greenspan starts taking music lessons as he hopes he can become a world-renowned jazz musician he spends six hours a day practicing a saxophone and as skill improves he gets recruited to a traveling band called henry jerome and his orchestra in high school greenspan was classmate with stan getz the legendary jazz musician and greenspan quickly realized that it didn't matter how hard he practiced he could never match stan gets talent it's a crushing realization greenspan knows he will never become the best saxophone player in the world but he stays with the band because it pays him a healthy wage of 15 a week during that period as the band starts making more money the number oriented greenspan becomes the unofficial accountant for his teammates as he works hard keeping the books and filing taxes greenspan finds his true calling he enjoyed doing the accounting tasks while others found them to be extremely tedious i think it gave him a sense of control that after some hard work seeing all the accounts perfectly balanced by 1945 greenspan quests a band as he believes his real talent lies elsewhere with the money he's earned as a jazz musician alan greenspan enrolls in new york university to study economics after just coming out of the great depression and world war ii the country is indoctrinated by the kenyan school of economics which promotes government intervention in the economy he believed in a disinterested ruling class and therefore he believed that class could be entrusted with quite a lot of power which wouldn't be abused but a young greenspan is a contrarian since he's a big fan of the great industrialist of the 19th century men like vanderbilt and rockefeller greenspan becomes a proponent of the free enterprise economy and less government intervention he believes it's the desire for profit that leads individuals to explore new frontiers creating everlasting economic growth and government meddling often does more harm to this process than good so he's a libertarian i also think that greenspan admired these titans of the 19th century because he secretly wanted to become one greenspan graduate summa [ __ ] laude in 1948 scoring an a in every class is taken and in 1950 he becomes a phd candidate at columbia university while greenspan is immersed and is peaceful and quiet economic life in pursuit of learning how the economy works the economy in the real world is about to get violent when the chinese army marches across the yalut river escalating the korean war it also changes american finance industry forever before that during world war ii the federal reserve made a deal with the white house to land as much money as the government needs in order to win the war but when the chinese intervenes korea u.s government assumes the federal reserve will continue to honor that agreement [Music] the fear of another war causes the american people to load up on supplies it's called a demand shock which typically causes a surge of prices that can look like inflation in 1950 the consumer price index goes up more than 10 percent it's a dire economic situation and the federal reserve is ready to tighten the supply of money but to make sure the korean effort succeeds truman starts applying pressure on the fed to keep the interest rate low before the korean war the federal reserve was more or less a humble subordinate to the treasury department it was supposed to be independent but really it was just a money printing factory to the white house the federal reserve rejects truman's demand and starts allowing the interest rates on the treasury bonds to rise it means the fed will stop lending more money to the government and banks to president truman the actions of the federal reserve are nothing short of treason forces the chairman of the fed mccabe to resign and brings on a new man he can trust william and chesney martin but the day martin takes over the fed he too turns on truman and declares the fed to be independent and should focus on solving inflation while the fight between the truman administration and the federal reserve is historic that marks a shift in power dynamics in america the average americans are just too distracted to care but it draws the attention of an aspiring young economist alan gringsman who now sees an opportunity to make a name for himself [Music] after observing the development of the korean war from the campus of colombia greenspan writes an article on the national industrial conference board titled the economics of air power for weeks greenspan has been religiously reading pentagon's official's congressional testimony which includes the data on a number of aircrafts in a squadron at how many squadrons per week and the rate of combat losses based on these data greenspan forecasts the number of aircrafts the air force must buy in the future not only that he projected the demand and supply for raw materials like aluminum and copper so by releasing that article i guess greenspan understood the power of press or in today's term content creation greenspan's article makes them instantly famous business magazines start paying greenspan for more articles [Music] reputation quickly grows as an economic wizard and soon he catches the attention of wall street [Music] the korean war rages on and there seems to be no end to it to ensure the war succeeds truman administration demands the federal reserve land the government and military as much money as it requires to win with u.s inflation already sitting at a dangerous level the fed rejects truman and starts reducing the supply of money alan greenspan is an aspiring young economist the unprecedented rebellion of the federal reserve makes greenspan realize that instead of being advisors economists can have real power he's confident he's just as qualified as any of the federal reserve insiders he just need to make a name for himself after publishing groundbreaking research on u.s aircraft production he instantly becomes a popular name in the economist community [Music] before long he attracts the attention of wall street roy and wallace townsend owns an investment advisory company on wall street since his business partner died townsend has been looking for a new company impressed by greenspan's research he invites him to become his new partner the new firm called townsend greenspan opens for business in september 1953. to greenspan the company is a perfect instrument for him to gain fame and fortune without having to climb the corporate ladder after taking over the consulting firm greenspan started researching the steel industry at that time econometrics was not widely adopted but greenspan uses the power of statistical analysis to build models that taking factors like iron ore shipment in order to make predictions about a steel output as more clients are eager to learn from greenspan's insight his firm raising record-breaking consulting fees within a decade greenspan becomes one of the most reputable economists but his success as a consultant has also brought him something more valuable political capital by 1967 his rise to popularity catches the eye of an ambitious politician who's taking a shot at the white house richard nixon [Music] alan greenspan's rights to fame as an economist is helped by his ability to leverage econometrics before its mainstream adoption most modern-day hedge funds rely on automated trading systems to gain an edge in the market but thanks to our sponsor today you can also gain that edge composer is a free innovative tool that allows you to automate your investing through simple designs of rules and weights they also have pre-built strategies modeled after legendary investors such as warren buffett and ray dalio for example i always wondered how ray dalio's all-weather strategy would have performed over the past five years so i built a risk parity portfolio on the platform based on five etfs that represent stocks commodities gold long-term and short-term bonds the result is surprising the all-weather portfolio didn't outperform the s p 500 but it is more stable having a higher sharp ratio thanks composer for sponsoring this video click the link in the description and join me in creating hedge fund investment strategies it's free and you can always delete your account if you don't like it by 1967 lyndon johnson's liberal policies have driven government spending sky high the result is an inflation at an extraordinary level through intimidation johnson has done what truman couldn't he successfully bans the federal reserve to as well greenspan was a devout libertarian so he hated johnson's administration so much that when he was offered to work for nixon's campaign he accepted it without hesitation he believed the welfare programs would cause inflation and even worse it would create a generation of entitled citizens that always expect government's handout what kind of a nation we will be what kind of a world we will live in whether we shape the future in the image of our hopes is ours as to determine by our actions and our choices with nixon successfully taking over the throne greenspan had hoped to be offered a job as chief economist but he doesn't get the job and he eventually realizes that nixon is not a true conservative visionary but an opportunistic and a paranoid politician he sits down in the group and within the first 30 seconds utters more four-letter words than i had heard in the music business and i said there's something extraordinarily wrong here that there were two nixons as nixon's economic policy starts failing by 1974 he decides to point greenspan as the chairman of the white house council of economic advisors greenspan doesn't like nixon but working at the highest office in america is just too alluring the timing couldn't be worse on the first day of his job as the chairman of cea president nixon makes a historic public statement i would have preferred to carry through to the finish that because of the watergate matter i shall resign the presidency effective at noon tomorrow vice president ford will be sworn in as president at that hour in this office [Music] with nixon gone greenspan keeps his position as the chairman of cea but what he really wants is to become the secretary of the treasury so typically before and during the election the president will want to boost government spending which increases the odds of re-election every economist at the white house suggested president ford do just that except greenspan he advises president ford to stand down on government spending because greenspan predicts the economy will keep growing without any change in the budget spending [Music] after his advice costed the election of president ford greenspan's political career has come to an end [Music] he returns to new york and begins working as a wall street consultant again greenspan also realizes there's much more to learn he goes back to school i finished his phd program but the failure was actually a blessing in disguise from the period of 1977 to 1980 the economy was destined to go down regardless of who's in charge at the white house if it was president ford with greenspan as the secretary of treasury it would ruin his reputation and he would not have become the federal reserve chairman later on but greenspan still dreams of being politics and he won't have to wait for long just less than two years after he returned to the private sector a true conservative candidate is about to join the race for the president [Applause] [Music] after advising reagan during his campaign greenspan becomes the director of social security and then the director of the council of foreign relations he believes ronald reagan will eventually appoint him as the secretary of the treasury but by 1987 a better opportunity has come along [Music] paul volcker was appointed by jamie carter during a time when american inflation was at a dangerous 12 percent volcker forcefully raised the interest rates creating a recession during the first three years but eventually the inflation problem is solved but by 1987 volcker's political ideology becomes at odds with the white house [Music] reagan administration is ready to deregulate banks allowing them to set up securities business but the banks will also need permission from the federal reserve as the chairman volcker rejects them because he believes banks may become too big to fail his action puts him on a war path with a regular administration until volcker is forced to retire paul volcker has advised me of his decision not to accept a third term as a member and chairman of the federal reserve board with a vulgar gone alan greenspan becomes one of the most powerful men in america it's a position that he has dreamed of i just wanted to say that i'm deeply grateful to the president for this opportunity to serve my country in one of its most sensitive economic posts as the chairman of the fed he is now given the ability to control the supply of money greenspan may be on top of the world but the financial catastrophe is just around the corner it will be the ultimate test to the new chairman of the fed this has been the worst day ever in the history of the new york stock exchange the dow off more than 500 points barely weeks after greenspan got in charge of the federal reserve the stock market takes a nosedive there was a point in time before lunch that looked like the gates of hell were about to burst open again and we were going you know another 20 25 down he knows his future as the chairman depends on solving this black monday crash over the years of playing the political game greenspan has evolved from being a libertarian economist to a pragmatist in the event of the black-mounted crash greenspan abandons his freight market principles and is about to bail out wall street he starts flooding the market with the liquidity aka lending money to financial companies which in turn increases the number of buy orders in the market restoring balance then greenspan instructs reagan to seek bipartisan measure to cut the government deficit it didn't matter if the two parties actually ended up working together it was a good enough posturing or signaling to the market because during a panic sometimes all the market wants is just some comfort and assurance greenspan's actions seem to work by the end of the week the panic is over with greenspan securely installed as the fed chairman the american economy enters a stage called the great moderation we had a pretty good run from the 1980s into the early 2000s the economy did very well we had rising stock market most of the world became more interested in market economies able to forecast short-term economic conditions with great precision greenspan has become known as the man who knew with that ability greenspan moves the lever of interest rates in both directions but only enough to maintain economic indicators at a modest level that's a very dangerous position to be in chairman greenspan has practically become chairman mao of communist china he rarely faced oppositions because people just believed that he knew everything about the economy it's not quite right to call him dictatorial that was never his demeanor but he ran the show but economics is not a science no theory or knowledge stayed true forever with a growing sense of intellectual superiority greenspan is about to sold the seeds for a financial destruction [Music] greenspan has ushered an age of easy money one wall street tycoon has capitalized on this economic environment rising from obscurity to becoming the ceo of a giant wall street firm he's accomplished all of that with easy access to capital his name is cindy weil and now while envisions something even bigger the merger between his company travelers with the mega bank city corp [Music] there's just one problem it is illegal [Music] lusseniwal isn't about to let it stop his ambition and fortunately sani wild has a friend who has the ability to turn the tide for him alan gringsman when he was young he used to advocate in favor of monopolies because he believed monopoly firms are simply the ones that run more efficiently than the rest it was illegal to acquire travelers greenspan said nothing the federal reserve gave them an exemption for a year and then they got the law passed thanks to the lobbying by powerful wall street bankers congress and bill clinton remove the glass-steagall act [Music] in the short term the banking industry skyrockets many mega banks are becoming even bigger by merging with other financial companies greenspan's power and reputation is also growing stronger he then goes on to defend the use of financial derivatives striking down any attempt to regulate them regulation of derivatives transactions that are privately negotiated by professionals is unnecessary he's appointed again by the bush administration after he seemingly navigated the economy out of the dot-com bubble as the country enters a real estate boom but greenspan knows the market is too hot like his usual tactics he plans to tighten the interest rates but only enough to heal the wound while the underlying disease is ignored nearly two decades chairman greenspan has shepherded our economy through its highs and its lows who will retire when his current term runs out at the end of january after 18 years working as the fed chairman greenspan officially retires and passes the mantle to ben bernanke [Music] he leaves behind an economy that is seemingly still prosperous as wall street firms continue to make record-breaking profits it can only go up from here right greenspan has led us through many recessions but he misses the biggest one since the great depression the federal reserve was set up so that financial crisis like this doesn't happen of course greenspan is not the only person who contributed to the housing bubble but on the other hand he was the most powerful man in the american economy and the housing bubble of 2008 completely shattered his reputation and legacy it's like a mystery story to me you know how in the world did i miss it do we economists know anything because if you don't know enough to capture the most extraordinary event economic event in all of our lifetimes what in the world do we really know for better or for worse greenspan changed america forever [Music] you

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Length: 28min 23sec (1703 seconds)

Published: Sat Sep 03 2022