Customer Reviews of Maestro : Greenspan's Fed and the American Boom
A human view of a superhuman
I just finished Bob Woodward's latest book, Maestro. It is an account of Alan Greenspan's Chairmanship of the Federal Reserve Board. Overall a well written work, it dwells mostly on the inner workings of the FOMC. It also delves into the relationship between the Fed and the executive branch of the government. Accounts of the tensions between Greenspan and various Presidents over the direction of interest rate directives provides for some of the most interesting reading. Also of note is Woodward's account of the Fed's role in various financial crises, particularly Mexico in 1995 and Long Term Capital Management in the summer of 1998. All in all the book offers valuable insight into the workings of the U.S. and world capital markets but does not express those insights in overly complex terms. One of the most important parts of the entire book is not actually in the book - it is instead in the epilogue. As he builds toward his conclusion on Greenspan's place in the present and in history, Woodward remarks that, "Greenspan stands at the crossroads of optimism and pessimism. Each of us is a character in the nation's great economic soap opera; Greenspan is both director and producer." This is a significant observation, for it forces us to acknowledge that our economic realities center not only on laws of supply and demand but also on emotions. Human emotions, at times subject to nothing more than unbridled fear or fervor. It is perhaps the simplest and most powerful realization any of us could reach - and one of the most laborious. Bob Woodward deserves our thanks for his masterful telling of the highs and lows of the economy and the apparent stoicism of Greenspan in dealing with them. Maestro is a profile of a pivotal figure in history. More than that, however, it challenges its readers to step into the shoes of the man who moves markets, leaving them with the distinct impression that he is often as unsure as anybody else (or ar least as unsure as any of his colleagues at the Fed). His attention to detail, coupled with an uncanny intuition for the nature of business gives him the courage to make difficult choices despite this uncertainty. Therein lies his genius.
Unconventional Wisdom Triumphs in Unconventional Times
I am quite taken with this book, which at 234 pages is "just right" and well crafted and edited to tell an important story. This is a story about applied intelligence in the finest sense of the word. It is a story about a man well-versed in traditional economic research, traditional models, traditional assumptions about the marketplace, who was put into the most important position in the global financial system at just the right time. His intuition allowed him to detect unexplained changes in productivity and to direct new lines of research that helped persuade more conventional authorities to follow his strategy. This is also a story about a uniquely successful partnership between a Republican central banker and a Democratic President-the very heart of the story centers around Greenspan's ability to persuade a very smart President that deficit reduction was the critical ingredient for a long-term restoration of American prosperity. Aided by an equally smart Secretary of the Treasury, Rubin, it was the President's initiative to reduce the deficit by over $140 billion dollars that allowed all else to follow. There is a clear message here for those who would reduce taxes before finishing the job of eliminating the deficit. As a professional intelligence officer, I am very very impressed by the author's recounting of how Greenspan actually "does" the job of intelligence collection and analysis at his level-the Central Intelligence Agency could learn a great deal from this man. The integration of constant (every fifteen minutes) monitoring of key indicators, the preparation of detailed research and statistics reports, and-by far the most important element-the continuous cycle of direct telephone calls and personal meetings across all sectors of the economy and around the globe, define what must be the most efficient and effective and valuable directed intelligence operation in the world-and one that does not steal the information it needs! There are a number of observations throughout the book that are helpful at a strategic level: 1) deficit reduction is the single best thing any President can do-that enables the Fed to be effective; 2) we forget so quickly how desperate the American economy was in the late 1980's-in a volatile world it would be all too easy to enter a recession or have a major financial panic; 3) structured decision-making is extremely dependent on the models and the data-Greenspan's place in history is assured because he had the intellect and the patience and the gut instincts to realize that the data was incomplete or too aggregated and the modeling assumptions were dated and no longer sufficient to plot the course of the new economy; 4) the psychology of the marketplace is at least as important as the reality, and is likely to be hurt by loose-cannon White House elements with good intentions but out of bounds; 5) even the so-called best and brightest in any Presidential administration will categorize new ideas they do not understand as "incoherent if not idiotic", as Greenspan's emerging new ideas were labeled by the top Treasury economists; 6) the concept of wealth redistribution fails to understand that even if $1 trillion from the 225 richest people in the world were redistributed to the poorest of the earth, this would only give them $1 a day for a year-Greenspan's focus is on underlying structural changes and the advancement of capitalism such that wealth can be created for the poor on a sustained basis; and 7) there will always be wild cards, such as the Savings & Loan crisis, the LTCM (Long Term Capital Management) crisis, and the Mexico crisis, that require a financial management or central banking network able to capitalize on personal relationships and deep knowledge to find impromptu solutions. On the latter note, it makes one realize that in an increasingly volatile marketplace, there should probably be much stricter limits on "leveraged" actions, where the majority of the money for gambling on the stock market or in the bond market-as much as 95% of the money-is borrowed and therefore likely to be defaulted if the wrong bet is placed. There is nothing in the book regarding any steps that Greenspan has taken or is considering in order to bring added stability to the marketplace. If I have one criticism of this otherwise superb book, a book that sheds light on many aspects of the Fed and its Chairman, it is that there is no hint here of what Greenspan has learned that might lead him to suggest legislative or regulatory changes intended to improve public transparency of key economic transactions, limitations on risk intended to prevent one rogue elephant (e.g. LTCM) from bringing down the market, and so on. I would have liked to see a summation, even a two-page appendix, on the "before" and "after" economic models that Greenspan helped to change, and also some sense in the conclusion of what needs to be changed to keep future market crises within the bounds that can be managed by the Fed-Greenspan clearly has broad shoulders and a broad mind, but he can't carry the load forever and this book fails to focus on what changes are needed to institutionalize the Greenspan wisdom.
One Very Good Reason NOT To Be The Next President
I thought it was never going to happen after reading a series of books about Alan Greenspan and The Federal Reserve. Prior books seemed to have had as their goal convincing any reader that a PHD in Pure Math was required to understand The Federal Reserve. Those who felt readers needed to have the English Language explained to them authored a book I recently reviewed. Just as I believe there are literally millions of Americans who have learned more about The Electoral College in the last 10 days than they did during how ever many years of school they attended, anyone who reads this book will find that The Federal Reserve while far from a simple agency performing simple tasks, it is understandable to anyone who has an interest in learning.
Mr. Bob Woodward has assembled a highly readable book, together with a brief index of terms, which makes this work invaluable. This would be so at any point in our History. But as we now have more Families and individuals whose finances are directly related to the financial markets, the book is important for everyone to read.
During the campaigns the voters are warned/scared into thinking of the evil that will befall them if a given Candidate becomes President, and appoints Supreme Court Justices. The congress that will assemble in January is so balanced, especially the Senate, that no matter who eventually wins, what was an election and now is a disgrace, is not going to get any judges confirmed that are at either end of Constitutional Interpretation.
But what of The Chairman Of The Federal Reserve? Mr. Greenspan is currently in the midst of a remarkable 4th term as Chairman, and many would argue a Chairman whose performance has been unprecedented. At 74 years of age how much longer will he want this position? He comments that having the job "is like eating peanuts" in that a person cannot stop, and I hope he does not. However I don't believe immortality is amongst his skills, and whoever is President when he ceases to be The Chairman, is going to have a huge problem.
Mr. Woodward explains why this is so by using some of the very public, and some not so public events/crises that any reader will have knowledge of, if not all, then some of the events he describes. October 1987 is familiar, it also moved into the background rather quickly for such an event. This book will rewrite those days of 1987, and explain just how close to a true financial disaster it was. After you read what went on to restore the markets, you will be pleased that firstly, you didn't know how bad it really was, and secondly, that Mr. Greenspan was at the helm.
Other events that are reviewed are, Mexico's idea of running an economy, and the US Bankers that lent your money to the Country, and how that situation was delicately finessed. The LTCM near disaster, while perhaps not as familiar to some, lays bare the wonderful world of arbitrage. For it is here that 5 cents gets you a dollar, winning is spectacular, and the consequences of losing are almost difficult to fathom. If you count stocks as a form of gambling, arbitrage make stocks look as safe as keeping the money in your mattress.
The book is full of actual transcriptions of various Federal Reserve meetings. This brings the reader into the room as a witness to a Chairman who not only clearly understands the economy better than anyone, but who is also a master politician and consensus builder. Universally liked he is not, as several Vice Chairman learned. The Federal Reserve has become Mr. Alan Greenspan, and since he was first appointed by President Reagan, then President Bush, and finally President Clinton, you will learn why.
I found his relationships with the Presidents he served to be fascinating, and I was surprised by the President he felt best understood the economy. The material if accepted by the reader may cause one to reevaluate some long held beliefs about a variety of powerful Washington figures.
This book works as Bob Woodward is as knowledgeable about Washington D.C., and has access to the players that is possibly without peer. He has earned the credibility he brings to his work over decades of writing, and the meticulous notes he includes give even more validation to the reader who requires it.
A book for all to read, for when was the last time a specific Supreme Court case directly and immediately affected your life? When was the last time The Chairman of The Federal Reserve changed your net worth with 2 words?
Remember "Irrational Exuberance"?
Secrets of the Temple, continued
If you want to put this long awaited work by Bob Woodward in proper context, sequence, and prespective, I highly recommend Fed nuts first reading "Secrets of the Temple: How the Federal Reserve Runs The Country", by William Greider, long time editor & journalist of the Washington Post.
In modern times, William Greider's work is akin to that of the Old Testament, Moses, and Paul Volker years (1989-1987) switch to Monetarism Policy during Carter's last year in office in the Fed's renewed war on inflation, and Woodward's work could be considered the New Testament with Alan Greenspan's coming when the war on inflation had already been won, 1987 - present. Both Greider & Woodward are superb writers.
Don't slam it until you've read it
You have to wonder about folks who slam a book without reading it based on personal ideology alone. Regardless of ideology, Woodward reveals the workings of the Federal Reserve in a way which does not require a degree in economics. While the nation is riveted on a partisan struggle for control of the presidency, it is fascinating to understand the degree to which this agency affects our economy and our lives. Woodward decodes the system for the lay reader, revealing the power of the Fed and Greenspans significant power within.