Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars
by Peter Hartcher
Jun 2006
The Human Element
If you want the full picture of the great dotcom debacle, you can get pretty close with four books: Origins of the Crash, by Roger Lowenstein; The New Reality of Wall Street, by Don Coxe; Extraordinary Popular Delusions & The Madness of Crowds, by Charles Mackay; and now Bubble Man, by Peter Hartcher, to round out the bunch.
Lowenstein looks at the crash through the lens of corporate excess, tracing a rampant culture of greed and deceit to its "origins" of many years earlier. Coxe gives insight into "triple waterfalls"–the sweeping market transitions, typically measured in decades, that define capital migration. Mackay examines the lunacy that ensues when the average investor gets swept up by hysteria, drawing timeless lessons from the adventures of John Law.
And now Hartcher offers up the final puzzle piece, laying blame at the feet of the man who saw the great bubble develop, privately acknowledged its presence, decided to do nothing, pumped it further, cheered it on, and then refused to take responsibility when it burst: Alan Greenspan.
The opening chapters of Bubble Man are mainly a historical account of the big crash and the causal events leading up to it. You may find it a bit late for yet another postmortem, as I did, but fortunately the details go quickly and the telling was nicely done. Just as I was about to write the book off as another mildly interesting but forgettable read, Hartcher took up the subject of Greenspan the man, the operator, the human being… and from then on I couldn't put it down.
Before reading this book, I had a minor inkling but no real grasp of how brilliant a politician and truly connected a player Greenspan actually was. In terms of subtle calculation, ego manipulation and natural alignment to power, he really was a "Maestro" of the highest order. Greenspan's subordinates were in awe of his mind-boggling command of policy minutia, inexhaustible reserves of patience, and superhuman networking skills. In Greenspan's defense, nor did I previously grasp how much political pressure a Fed Chairman is actually under. The notion of Fed independence is laughable, an idealistic notion crushed by the realpolitik of the real world.
Detective-like, what Hartcher does best is skillfully reconstruct the scene of the crime… the play by play of the Chairman's moral downfall. We retrace the painful missteps that Greenspan learned from early in his career, and from there observe how he shaped and crafted his political life into an exquisite work of art. The emotional pinnacle of the book is the "irrational exuberance" moment: the point at which Greenspan must decide whether to fulfill his duty as leader and protector, and risk sacrificing all he holds dear, or preserve popularity at the cost of his soul. We know which path he chose. If Hartcher's account were made into a movie it could be an Oliver Stone docu-drama, with all the elements of a Greek tragedy and the conflicted Chairman at center stage.
As Bubble Man demonstrates with great attention to detail, the brilliant Maestro turned out to be a coward. In a job that required backbone above all, Greenspan failed us. (Though we the people, by way of our elected politicians, first failed him.) To make things worse, once the decision to sell out was made, all sense of propriety went out the window. Greenspan expressed bubble concerns as early as 1996, but later denied those concerns completely. Instead of providing sober adult supervision, he cheered Wall Street's madness from 1996 on. Instead of encouraging thoughtful discussion at policy meetings, he neutered debate as much as possible. Instead of trying to maintain political objectivity, he cut implicit deals and grew closer to the White House with each passing year. By electing to go with the flow when he should have been fighting it, this banker's banker wound up a rock star, an economic hero "so square he was cool," and to those Wall Streeters who made millions from his easy money policies, a god.
Greenspan's eventual bitter defense—that bubbles cannot be spotted in advance—was self-serving, self-contradicting, and something he probably did not believe himself. His successor, Ben Bernanke, has inherited an unbelievable mess—one that is probably too big to be cleaned up. Hartcher's clear-eyed account, and others to follow, will hopefully inform history and help set the record straight on the Bubble Man's true legacy.
