The Age of Turbulence: Adventures in a New World

Alan Greenspan, as the head of the Federal Reserve, has been in an enviable position to witness the economic movements of the USA and the rest of the world. The book is divided into two parts, the first one is a chronological biography, and the second one is his views on the challenges facing the USA and the rest of the world.I was a bit disappointed with the publishing date of the book (it was published in 2007), as it was before the big global recession. I would have loved to read his views on the downturn, its causes, and his defence against the role he played in creating it, as a number of people have insinuated.Also a result of having been published earlier, there are a number of views he expresses, with which I now do not agree. He might have changed his views, had he witnessed the huge problems created in the USA.Some of the views and beliefs expressed in the book with which I disagree include:1. The current account deficit of the USA may not matter much.2. Hedge funds should not be regulated as they play an important role in stabilizing markets.3. Banks can regulate themselves much better than regulators can.4. Bank employees care for the shareholders, and so limit risk taking.5. Credit derivatives and mortgage backed securities make markets more efficient and better.6. Belief that regulation should restricted as much as possible.7. Belief that bubbles should not be popped.8. Belief that taking out home-equity loans was beneficial to the economy, and ignoring the risk of defaults.9. His endorsement for CDS as a way to redistribute risk, but ignoring their use as speculative instruments.10. Ignoring the risk of increased inter-linkages of financial institutions.Overall, the biographical section is very interesting, as it provides an insider view on the politics and policy-making of various US governments. The second section is a bit more general, where he outlines the problems, but refrains from clearly outlining workable solutions which could be implemented in order to overcome these problems.I found this book to be a quick read, and would recommend it to anyone interested in understanding the workings of the federal reserve and the US government from a practical viewpoint. ( )

Pretty boring, frankly. ( )

This book is easy read. Remarkable because it covers very complicated events. It is very much a "day-in-the-life-of" kind of novel. Every student of economics could gain a greater understanding of how to put their economic training to practical use. It also raises a few interesting questions. For example, why do we collect taxes at all? Why not just run a deficit to pay for government spending? The answer to this question supports pay-go policies in government. Also, when government runs a surplus, why not just dump it all into the stock market, as the Clinton administration suggested? How much room is there for government in the private sector? The book also highlights conflicts between short-term and long-term financial policies that continue to cripple today's populist governments. ( )

Inside Alan's brain

With the timing of a senior trader in financial markets, Alan Greenspan chose both the moment of his retirement and the publication of this memoir perfectly. This book was published when confidence in financial markets was slowly eroding, but had not yet led to the demise of Lehman, or the massive support actions for AIG and other financial institutions across much of the Western world (strangely, no Asian or Southern European institutions were affected).

As chairman of the Federal Reserve, Mr. Greenspan presided over the Great Moderation, one of the longest economic expansions in modern history. The self-proclaimed libertarian Republican shared a well-accepted opinion that we should allow for creative destruction as much as society accepts, as it is good for economic growth, which is good for society. With the tool-set of the neoclassical Chicago School he cared mainly about inflation and the money supply. Debt levels, exchange rates, and current account deficits are basically ignored, as markets will correct them automatically.

The book chronicles Mr. Greenspan's development from nerdy business economist to head of the FED with dozens of friends in high places, plus a description of those parameters of the global economy he deems important for the coming decades. The first part is relatively short and sympathetic. I found the part about his years at the helm of the FED somewhat disappointing. We learn little about the inner workings of this organisation of global importance, as if Mr. Greenspan was only busy with inflation and trying to convince the Washington political machine to implement healthy long-term economic policies instead of pork (Congress and the Bush Administration are not spared). The part about future developments is interesting, as we see Mr. Greenspan at work, fitting real world developments into his theoretical framework. Compared to an article in the FT or the Economist, it is a relatively slow and somewhat cumbersome process, but depending on how well you read the financial press, you may find more or less new information here.

However, in 2010 we cannot but see this book in light of the developments of 2008 and 2009. In later interviews Mr. Greenspan has expressed his “shocked disbelief” in the behaviour of those playing the markets (his nerdy character has definitely been a disadvantage here, and I doubt if he had put so much trust in markets had he been experienced as a trader or a banker).

While Mr. Greenspan thought he could keep interest rates low and the money supply high at the same time, because globalisation and Chinese factory workers kept inflation in check, an 800-pound gorilla was maturing right under his eyes: the easy availability of money reduced the returns on traditional financial instruments and was an important reason for investors to accept high risk propositions (and it also reduced the rational for saving by private citizens). Mr. Greenspan argued that "real" prices of financial assets cannot be known, which is true to a large extend, but turned lethal .

Mr. Greenspan expanded his benign neglect to financial market supervision, where risky behaviour was slowly creating the conditions for an old-fashioned Kladeradatsch. He states in his book that supervisors cannot assess a counterparty as well as other market participants, a claim he does not substantiate. A supervisor has an asymmetric information advantage versus market participants, who base themselves upon reading financial statements, credit value at risk calculations, and ticking boxes like “under supervision [Y/N]”. Only the number and quality of staff (which is partly based upon the salaries the supervisors pay) can give supervisors such adisadvantage. Given his trust in market participants’ common sense and long-term outlook, the FED did not advocate any restrictions on mortgage quality requirements, executive pay structures or centralised clearing of standardised over-the-counter derivative trades.

So all-in-all it is an interesting book, but overtaken by a new reality that you can find explained much better by the likes of Paul Krugman (thanks for the link, Proximity1)or William White.

Mr. Greenspan responded to criticism here. ( )

Interesting and well-written. Once the current financial crisis blows over and a few years pass - I hope this book will get fairer reviews. The first half is an interesting memoir of his growing up and the ideas and events that shaped Greenspan as an economist. The second half is an analysis and defense of property rights, free markets, the rule of law and several specific aspects of our global economy. I was surprised by some of his explanation of his private views -- I wish the public would have heard more criticism of the rise of debt during Bush's term and his lack of using the veto from Greenspan while he was in office, rather than a belated explanation years later. Other than that - nothing shocking, just a well written book about today's economy and its development. ( )