Sunday, August 12, 2012

Greenspan's Silver Anniversary

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

"Tomorrow is the 25th anniversary of one Sir Alan Greenspan's confirmation vote. Fred, you doing anything special to celebrate?" wrote Scott Frew, General Partner of Rockingham Capital Partners L.P. hedge fund.

            Well, no, but we have an obligation to remember. What follows is a draft of was later refined in Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession and in other publications. This includes comments of other senators that may not have been published elsewhere. Reading through this early version, it is notable how many senators were concerned the imbalances - federal budget deficit, trade deficit, the leveraging of corporate balance sheets - were about to crush the country. And here we are 25 years later.

            Since I'm dragging out reruns, a frequently repeated warning:

"The sense of security more frequently springs from habit than from conviction, and for this reason it often subsists after such a change in the conditions as might have been expected to suggest alarm. The lapse of time during which a given event has not happened is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent."

                                                -George Eliot, Silas Marner

Now, to the hearing that preceded the Senate confirmation vote on August 11, 1987:

Greenspan's nomination hearing before the Committee on Banking, Housing and Urban Development took place on July 21, 1987. It was chaired by Senator William Proxmire of Wisconsin. In Proxmire's opening remarks, he churned out the requisite nonsense. He ticked off a pantheon of chairmen - Martin, Burns and Volcker - then extolled their backbone: "If there is one distinguishing hallmark of their service as chairman of the Fed it was their consistent independence. They were independent of the President and were independent of Congress." He then confirmed the legislators' support for such independence by asking the question: "From the time you take over this office you will be entreated to expand the nation's money supply.... Are you the man who can say no to the Administration and to Congress?" (This was in the early stages of Proxmire's remarks and no answer was expected, but we can be sure, what was expected would have been pronounced, with neither the candidate nor the interrogators believing a word of it. During the hearing, Greenspan would quote from the textbook: "It is absolutely essential" that the Fed's "central focus be on restraining inflation because, if that fails, then we have very little opportunity for sustained, long-term growth.")

Proxmire's exploration then grew more interesting. The senator told Greenspan he had voted against the CEA chairman's nomination in 1974. Greenspan had proved himself to be a "get along, go along, comfortable and increasingly popular chairman." (It is not clear if Proxmire considered this good or bad.) The Banking Committee chairman chided the candidate for a "dismal forecasting record" when he was chairman of the CEA. Proxmire reviewed the forecasts made by the Council of Economic Advisers between 1976 and 1986. The Senator was most interested in the CEA's projections made during Greenspan's term looking forward to the years 1976, 1977 and 1978. In Proxmire's words, the forecasts made by the candidate were "way off." Of the interest rate forecasts made by the Council of Economic Advisers (for the years 1976 through 1978), Greenspan's were wrong by the biggest margin of any of the 11 years..." Proxmire went on: "There you broke all records for the entire period in error." The man whose opinions President Ford weighed more heavily than "those of any other economist" had prophesized the Treasury bill rate would be 4.4% in 1978. It was 9.8%.

Of inflation: "There again, you broke all records." The only CEA chairman to adorn the front cover of Newsweek estimated the Consumer Price Index would rise 4.5% in 1978. It soared 9.2%.

In later years, Greenspan would control such quibbles; not this day. He replied to Proxmire: "That is not my recollection of the way the forecasts went." Proxmire, forecasts in his hand, read the date to Greenspan. The candidate admitted: "Well, if they're written down, those are the numbers."

The transcript follows:

GREENSPAN: "There is a very substantial difference, Senator, between forecasting in the Administration and forecasting outside."
PROXMIRE: "I sure hope so!"

Greenspan then embarked on the gobbledygook so familiar in later years. Proxmire waited patiently and then responded:

PROXMIRE "Every one of the chairmen of the Council of Economic Advisers had the same problem, and they didn't miss by as much as you did, not nearly as much..."
GREENSPAN: "I feel sorry for me and happy for them."

Proxmire, perhaps having anticipated Greenspan's public sector-private sector line of defense, had done his homework. The firm of "Greenspan & O'Neil" in the following discussion refers to a joint venture between Greenspan and Rory O'Neil that provided money management services to pension funds.

[Note: Rory O'Neil recently died, on July 31, 2012. Reading the obituaries, he was an accomplished investor and was a hard-working philanthropist, spending over 30 years restoring the dilapidated waterfront of Hartford, Connecticut. Of course, the obituaries had to fall under such headlines as: "Former Greenspan partner..." They spent less than one year together. Such are vagaries of history. - FJS]  

"You had the opportunity to be forecaster with Greenspan & O'Neil. As you know, you put your forecasting to a direct test in the private sector." Proxmire then quoted a recent issue of Forbes Magazine. "'Greenspan & O'Neil turned in one of the least impressive records of all pension fund advisers.' "

Greenspan did not throw out an illusory defense this time: "All I can say is, I acknowledge that did not work out very well, and I take my share of the responsibility."

PROXMIRE: "...I hope... when you get to the Federal Reserve Board everything will come up roses. You can't always be wrong.

GREENSPAN: "All I can suggest to you, Senator, is that the rest of my career has been somewhat more successful."

As a taste of what was to come, this was an introduction to Greenspan's ever-present qualifiers: "suggest" and "somewhat" giving the candidate room to maneuver, should Proxmire pursue this course of interrogation. The Senator did.

Proxmire quoted a forecast Greenspan sent to clients on March 20, 1987. "The recession we had not expected until 1990 now appears more likely to emerge in the last quarter of 1989.... A stock-market led expansion of capital equipment in late-1987 is projected to lead to a final surge for the business credit cycle. This surge is expected to precipitate a recession shortly thereafter... [And the] recession is also expected to be somewhat more severe than we had projected in October [1986]."

Proxmire asked Greenspan if he still stood by that forecast:
GREENSPAN: "May I ask you what the date on that is?"
PROXMIRE: "The date is March 20, 1987. Four months ago.
GREENSPAN: "I don't know how to answer that..."

Since Proxmire prefaced his statement by stating the date, Greenspan's question is strange. After not knowing how to answer that, he then launched into an answer that was not an answer, but a response full of qualifications that went on to qualify the qualifiers. Proxmire waited patiently before responding: "You were so specific in the dates of this forecast." To this, Greenspan went on to qualify more qualifications. Proxmire, his time up, responded "yes".

The other senators had their own concerns, more general in nature. Given the evolution of finance during Greenspan's term, his opinion in 1987 is worth knowing. Senator Sasser from Tennessee was concerned with debt accumulation. He thought rising corporate debt associated with mergers and acquisitions was troubling, particularly the capacity of business to operate in the next downturn. Greenspan agreed. The U.S. would be more vulnerable in the event of a significant downturn. The fixed charges, "specifically, debt service, which obviously does not decline when gross operating incomes fall, and the so-called "coverage" of the interest becomes insufficient.... We are increasing debt at levels which should make us all uncomfortable. It certainly makes me uncomfortable."

Greenspan spent his early tenure at the Fed shoveling out the debris caused by companies that had taken on more debt than they could bear. Greenspan's answer was qualified in the case of a "significant" recession, which is more in line with 1975 than the early-1990s. Nevertheless, companies were crippled. Knowing his worries in 1987, and what he lived through, his later comfort with consumer fixed debt, particularly home mortgages, is a repudiation of his own insight and experience.

Senator Riegle from Michigan was also concerned about spiraling debt: "We are adding $1 billion of new debt every 2-1/2 days." Riegle lamented that the U.S. had been a creditor nation since 1914 but was now adding $170 billion a year to the trade deficit. There had been a "breathtaking change" in dollar claims outstanding between 1982 and 1986.

Greenspan sounded equally distraught: "The greater the external liability is denominated in dollars of the United States, the greater the number of problems that occur when holders these dollars decide to switch..." out of the dollar.

Senator Shelby from Alabama had the same concerns. He asked Greenspan if he was troubled that, as a nation, "the U.S. had added $1.5 trillion to the national debt over the previous five years when it took the first 195 years to accumulate $1 trillion.

Greenspan responded: "It bothers me a great deal." He then attempted to pacify the senator by stating: "We're starting to deal with it." Shelby was having none of this: "We haven't even started to deal with it." The nominee thought he might sooth Shelby by claiming he did not think "it would be necessary to actually reduce the national debt." Greenspan then launched into some equivocations, that, if read five or ten times (not a luxury available to the senators), essentially meant: "We can't reduce it because we won't reduce it." This, of course, was true.

In an Abbot-and-Costello, "Who's-On-First?" routine so common in later years, Shelby worried about America's status as the largest debtor nation in the world. Greenspan replied, it "isn't clear" if the U.S. is the largest debtor nation in the world.

SHELBY: "If we are not first, who is?"
GREENSPAN: "Oh, there are a lot of others."

End of discussion. Shelby did not have time to clarify answers-and-questions for Jeopardy. The senators were allotted a given amount of time to quiz the nominee. There may be a good reason for this (filibustering politicians comes to mind), but, Greenspan knew - if not on this day, soon enough - he could run out the clock with his own form of filibustering. This often took the form of the Shelby discussion. Like a caterpillar that huddles into a ball when its back is touched, Greenspan would change a specific point of topic into a vague assertion that would leave his questioner unable to pry him open.

Shelby warned the national debt was "a ticking time bomb." He worried that the U.S. was vulnerable to foreign influence on the dollar. He asked the nominee: since the Germans, French and several others held an abundance of dollar claims, could they, in unison, decide to peg the U.S. dollar at a specific rate convenient to their own policies?

The senators agreed some of their questions were too involved for the candidate to answer on the spot. He was sent a list of questions after the hearing to which he responded in writing.

One written question asked Greenspan if the Federal Reserve could intervene in the foreign currency markets to set the price of the dollar. He responded that the Federal Reserve should not intervene in currency markets. It could, however, set the currency rate, but only for a short period of time.

In another written response, Greenspan disavowed his former advocacy of the gold standard. His reasoning was specious: "Considering the huge amount of dollar claims in world markets, fixing the price of gold [by central bank intervention] seems out of reach." It is safe to assume he pulled this response out of a hat. He wanted to be Federal Reserve chairman. The Committee wanted an assurance Greenspan was not one of those dreaded gold bugs. Each side got what it wanted.

Proxmire closed the hearing, resigned to the result. The senator had greater concerns than wayward forecasts. It is only conjecture, but the transcript leaves the impression that Proxmire's real concern was the integrity of the banking system. From his statements and questions, Proxmire obviously thought the growing concentration of financial power and solvency of the financial system was heading down a dark road. Given this, the purpose of his interrogation of Greenspan may have been to prevent the fox from entering the henhouse. Proxmire's concern might be summed up in this closing comment: "It seems to me that banking in this country and finance in this country is moving very sharply... in a direction of concentration and in a direction, which, I think, most senators, if they thought about it very long, might very concerned about." This leaves the sense of a man with a clear view of the future, but who was frustrated with his myopic, fellow senators.

Given that Proxmire was correct, it is worth reviewing his specific concerns, all of which bore fruit (or weeds). He was concerned about non-banks encroachment on the banking industry. He thought Greenspan was not the man to halt this tide. The candidate had been an "advocate" for Sears. The consulting economist "wrote articles in support of and allowing commercial and industrial firms to own banks." Proxmire expected no resistance to whatever Greenspan proposed to the Federal Reserve Governors or FOMC. ("[Y]ou will move in with a board of clones - not clowns - clones.") The committee chairman regretted they had not discussed Greenspan's position on direct investments by savings and loans associations, "but many of us feel that direct investment can mean the downfall of an industry..." This shows a surprising gap in the senator's preparation as we shall soon see.

Proxmire resigned himself to the inevitable: "[T]his nomination should result in a slam-bang debate in committee and the floor. It won't, and it is startling, given what you have told us."

The senator's investigative reporting prodded the New York Times to look past its archive of Greenspan superlatives and study his forecasting record - for one day. The Times decided the Committee's challenge to the Greenspan image was "only partly justified." It found justification in a study by the Federal Reserve Bank of Boston in which Townsend-Greenspan' and Wharton Economics' inflation predictions tied for last place." (Wharton was the firm headed by Larry Klein, Nobel Prize winner in 1980 and inspiration for the Lawrence R. Klein Award for Blue Chip Forecast Accuracy.)

In a reminder that the inflation of words was rising at a rapid clip, the Times opened the article by reminding its readers: "For more than 20 years, Alan Greenspan has figured prominently on all the lists of famous American economic forecasters." Other than the occasional prediction quoted by the Times', Greenspan was an unknown figure before his CEA tour. His fame as a forecaster, if that is the right word, principally rose because the status was asserted. (For example: in 1981, the Times explained Murray Weidenbaum was at a disadvantage, since the new CEA chairman lacked Greenspan's "expertise as a forecaster.")

Aspects of Greenspan's willowy character bloomed during the summer of '87. In early June, he told a Chicago audience that "over the long run" the value of the dollar would go "significantly lower." A week later, at the press conference announcing his nomination, he discussed "evidence" that the dollar's fall had bottomed out." Before the Banking Committee, he announced the dollar had entered a "period of stability."Given the approaching stock market crash, which was inseparable from a plunging dollar, this last prediction would seem to rival his 1973 advice to buy stocks. But this was not his prediction at all; his own position was expressed to the Chicago audience the month before. Proxmire was on his tail, but pursuing Greenspan's currency conversion would be a useless exercise. Greenspan knew this; the senator knew this. The candidate also knew the Federal Reserve chairman could survey the political winds each morning and make the opportune forecast.

            Townsend-Greenspan died quietly on July 31. The White House asked Greenspan to remove his name from the firm. He complied. The furniture and computers were sold at the beginning of August. Greenspan was required to place his $2.9 million of assets in trust.The White House request was fortuitous. Pierre Rinfret, a New York consulting economist (who served with Greenspan on Nixon's 1968 economic advisory panel), refuted the common perception: "Everyone thinks that Greenspan gave up a lucrative consulting business to work in the public sector. In actuality, his business had been losing clients steadily to the point where he hardly had any left by the middle of the nineteen eighties."[Note: for more recent comments, see: "Color Commentary."] The new Fed chairman had spent the past few years lobbying at 1600 Pennsylvania Avenue in lieu of studying livestock and mobile home sales at 120 Wall Street (the firm's address). Townsend-Greenspan had been hollowed out.

Prior to the hearing, Greenspan submitted a statement to the White House and Congress, a full disclosure of relationships that might cause conflicts of interest. The nominee listed his board membership at J.P. Morgan and Company as well as its banking subsidiary Morgan Guaranty Trust Company, his associations with Capital Cities/ABC Inc., General Foods Corporation, Mobil Corporation, Pittston Company, Aluminum Company of America and Automatic Data Processing Inc. Senator Proxmire questioned Greenspan on two relationships Greenspan had not listed: Sears, Roebuck & Company and Lincoln Savings & Loan of Irvine, California. Greenspan's distinguished the two by slipping them in the side pocket of "advocacy projects." Cutting through the euphemism, he was paid by each to lobby for banking de-regulation. As Fed chairman, he would become the nation's banking regulator.

Greenspan's "advocacy" distinction was furtive. At the time, he was lobbying for non-financial companies such as automakers and retail chains to operate limited-service banks. His advocacy for such was anathema to Proxmire, who was no fan of de-regulation. Greenspan also wished to [eliminate] the Glass-Steagall Act. This 1933 bill prohibited commercial banks from underwriting securities. The Glass-Steagall Act was disappearing by slow erosion. (It was repealed in 1999.) An early victor was J.P. Morgan & Company, the first commercial bank allowed to underwrite corporate debt (in 1989) and common stock (in 1991). Greenspan's influence should not be exaggerated. J.P. Morgan still possessed the aura of its namesake. It was considered by many as an appendage to the U.S. Treasury. [Note: It still is. - FJS, 2012] Its first past-the-post victory was a natural step in the evolution of banking.

Greenspan was fortunate his nomination preceded the unwinding of Lincoln Savings & Loan. The "Keating Five" scandal was hatched at Lincoln. Five senators lost credibility in its wake (specifically: Cranston, Riegle, De Concini, Glenn, and McCain).

Savings and loans had suffered whiplash from the rise and fall of interest rates. Many were in danger of extinction. Alan Greenspan had warned of their vulnerability. In 1981, he told U.S. News & World Report that high interest rates were suffocating S&Ls: They "can only exist in a non-inflationary environment." He told the Times "[t]here are now a bunch of moribund cases out there." The consulting economist was not sure if "any" of the savings and loans had equity, but that was not the real problem: "The problem is cash flow...There are a number of institutions that are barely able ... to pay their liability side [of the balance sheet]."

His sweeping claim of insolvency was an exaggeration, but there was much truth in what he said. Notably, his concerns did not apply to Lincoln. It was run by the Crocker family, which owned 40% of the shares. Like most S&Ls, it lost money in 1981 and 1982, but, as with many of these institutions, returned to profitability in 1983 (with the decline of interest rates). Donald Crocker, son of the founder, had dropped his law practice to nurse Lincoln back to health. Having succeeded, he wanted to do something else. Charles Keating offered to pay $51 million - two and a half times its over-the-counter market price. Michael Milken helped broker Keating's acquisition.

An economic consultant who would write a bill of good health on the part of Lincoln should have looked upon Keating with some curiosity. Since Alan Greenspan devoted his greatest energy to knowing everyone who wielded the levers of power, it would have been a strange lapse if he was singularly uninterested in his client. Keating had been executive vice president of Carl Lindner's American Finance Corporation. Lindner's reputation rose from the conglomerate boom of the 1960s. Lindner was an early and smart investor in Milken's junk bond offerings. In 1979, the SEC charged Keating with making improper loans to insiders and friends (of Lindner's Provident Bank of Cincinnati). Keating had also arranged a pattern of loans to purchasers of assets which Lindner wished to sell. Keating consented to a permanent injunction with the SEC, which should have barred him from ownership of an insured depository. Somehow, his Lincoln Savings application to the FHLB slipped down the drain hole.

William Seidman, who headed the Resolution Trust Corporation, the body that cleaned up the savings and loan mess, wrote later that Michael Milken had "rigged the market by operating a sort of daisy chain among the S&Ls to trade the bonds back and forth across his famous X-shaped trading desk in Los Angeles. By manipulating the market, he maintained the fa├žade that the bonds were trading at genuine market prices... [W]hen.... [Milken] was brought down, and his trading operation with him, so were the S&Ls that depended on the value of his bonds to stay afloat."

In 1984, Alan Greenspan was hired by Charles Keating, who needed a respected figure to write a letter to his regulator, the Federal Home Loan Bank of San Francisco, stating that Lincoln Savings and Loan's investments were sound.

On February 13, 1985, Alan Greenspan wrote a letter to Thomas F. Sharkey, the Principal Supervisory Agent at the Federal Home Loan Bank in San Francisco. Most of the letter addressed the direct investments of Lincoln. (In the wake of hyper-activity, the Federal Home Loan Bank Board had recently passed a new direct investment rule in an effort to corral overzealous S&Ls.) He informed Sharkey that Lincoln had "adequate capitalization, sound business plans, managerial expertise and proper diversification." Greenspan stated that Lincoln's management "is seasoned and expert in selecting and making direct investments." The seasoned, J.P. Morgan board member revealed Lincoln "has developed a series of carefully planned, highly promising, and widely diversified projects" and "that denial of the permission Lincoln seeks would work a serious and unfair hardship on an association that has, through its skill and expertise, transformed itself into a financially strong institution that presents no foreseeable risk to the Federal Savings and Loan Corporation."

By that time, Lincoln was not only loaded up with deals through Milken, it was swapping them at a profit with its holding company, American Continental Corporation.

American Continental Corporation - and Charles Keating - had been spun out of Carl Lindner's American Financial Corporation.

In William Seidman's words: "The Greenspan report failed to note that Keating's savings and loan had simply exchanged interest rate risks for the much greater asset quality risks - that is, the old-fashioned, hair-curling risk of speculative real estate investments." While under Keating's employ, Greenspan also suffered a lapse when writing a letter to Ed Gray. The man who would become the nation's leading bank regulator in 1987 notified the FHLB chairman that deregulation was working as planned. Greenspan cited 17 thrifts that had reported record profits and were prospering under the new rules. By 1989, 15 of the 17 thrifts would be out of business and cost the Federal Savings and Loan Insurance Corporation several billion dollars."

Barrie Wigmore, then at Goldman, Sachs, wrote an excellent book, Securities Markets in the 1980s. Wigmore discussed how Meshulam Riklis, Carl Lindner, and Saul Steinberg used their conglomerate platforms to swap paper.

Wigmore wrote, of Riklis, Lindner and Steinberg: "[I]t is tempting to conclude they... represented a cabal.... [They] cooperated and invested with each other extensively and were old hands in the market aspect of "Chinese paper" from the merger wave of the 1960s." Their "activities illustrate the combination of native cunning and access to leverage that made them effective."

Wigmore wrote they (Riklis, Lindner and Steinberg) had a common involvement with Michael Milken's group at Drexel Burnham that probably helped to create enough liquidity for their junk bond securities..."

Greenspan surely knew who he was dealing with. He had been on Wall Street in the 1960s. He trafficked in knowing who he should be smoozing. In the 1980s, he must have known Lincoln was part of the Riklis, Steinberg, Lindner, Milken crowd.

This was just the man to inherit the Federal Reserve chairmanship in 1987. Four years before, in 1983, a poll of Wall Street executives found that 31% of them had a special confidence in Alan Greenspan, should he be named chairman. He was second in that poll, behind Paul Volcker. What was it that Wall Street saw in this fourth-rate economic consultant?

            Charles Keating was convicted of looting $3.4 billion. Alan Greenspan was not held to account for his endorsement because the political establishment was in no position to cross-examine him. When Keating was asked whether the money he contributed to the Keating Five had influenced them, his response was refreshingly honest: "I certainly hope so." In 1988, when the hemorrhaging S&Ls had already cost several politicians their credibility, 333 Congressmen and 61 senators listed "significant donations from the industry." Donald Regan, who was President Reagan's chief-of-staff from 1985 to 1987, had been trying to oust Ed Gray from his position since 1984, (when Regan was Treasury Secretary). Many of the S&Ls Gray shut (including San Marino S&L) were large contributors to President Reagan's 1984 re-election campaign; Donald Regan "believed in helping contributors to the party." Gossip on Capital Hill had it that the former chairman of Merrill, Lynch wanted to "destroy the S&Ls as privileged providers of housing finance." True or not, the contributions of Merrill and like firms to the housing mania two decades later were impressive.

The other body that might have investigated Greenspan's involvement was the media. It made little ado about much. When it did make ado, Greenspan turned the question on its head. This was to be the mistletoe that hung over his 18-year affair with Congress. A quintessential example of his enduring magic act was anteceded by a 1989 Times' article with the title "Greenspan's Lincoln Savings Regret." The article was poorly titled; the chairman expressed no regret. If Greenspan received the same assignment in 1989 with the same evidence he had in 1984, "his conclusions about Lincoln... would be very much the same."

Alan Greenspan cannot admit to a mistake. Like a mother hen defending her offspring, Greenspan developed highly successful defenses. Here, he takes a defiant stand; it puts an end to the interrogation. He seemed to reserve this for instances when his actions were indefensible. (We will see it again when Greenspan came under attack for a speech in 2004 that urged the innumerate to buy adjustable-rate mortgages.) Note that when Senator Proxmire pinned Greenspan to the mat, he could not make the simple admission: "I was wrong." The Greeks developed this plot 2,500 years ago. Greenspan will, as chairman, imitate art - his mistakes will compound and inflate, inducing the most tortured logic, mutating the economy and financial structure in ever greater distortions.

He told the Times reporter the issue was whether the ownership by savings and loans associations in real estate projects and other commercial ventures "posed excessive risks." This was not the issue at all. The consulting economist had been hired by a man with a dubious past and a regrettable present whose financial statements were filled with fraudulent loans and junk bonds. Lincoln had more than doubled in size over the past year when Greenspan reviewed its "application [for direct investments] and its audited financial statements" (according to his letter to Thomas F. Sharkey.) The financial statements showed depositors' money had been invested in raw land in the Arizona desert and betrayed an insatiable appetite for junk bonds. The erstwhile S&L had abandoned the home mortgage market, Southern California or otherwise, despite its superb mortgage record among large thrifts. Recall that Keating had agreed with the Federal Home Loan Bank to concentrate his portfolio on Southern California home mortgages. Surely, this thumbing-of-the-nose at the FHLB would have crossed Greenspan's inspection if he more than glanced at Lincoln's books.

Again, by 1989, Greenspan was the country's top bank regulator. And again, he had been a director of J.P. Morgan. He had been on the board of directors of Trans-World Financial, a savings-and-loan holding company from 1962 to 1974. At a 1998 FOMC meeting he would reminisce: "When I was in the private sector, I remember looking at the details of particular loans that were shown to bank directors. I was on the loan committee of [J.P. Morgan], and we actually went through the loan portfolio major client by major client. The banks' senior loan officers would provide a basic review. They would take the loan portfolio and point to the vulnerabilities and strengths of the borrowers and give their evaluations of the risks that were involved. The review was quite thorough..." The audited, junk-bond portfolio placed before the consulting economist may have been priced at par. But chances are, they were Drexel Burnham issues. The 1984 annual report of Tom Spiegle's Columbia Savings & Loan - one of the "big three" that held $3.5 billion of junk at the end of the same year - shows that every issue was sold my Milken's group. By 1985, everyone had their suspicions about Drexel and Milken.

The Times reporter told his readers that "no one in Washington is saying that" the author of the essay "Integrity" has "compromised his integrity or his office."

Now, the man who attempted to assure Senator Proxmire that "the rest of my career has been somewhat more successful," was the new Federal Reserve chairman. Was there anything, was there a single trait, a feature, a mark of - not distinction, but simply an acceptable level of mediocrity - Alan Greenspan possessed, a requisite in the composition of a Federal Reserve chairman?