Alan Greenspan on 'Turbulence' and Exuberance

DATE September 18, 2007 ACCOUNT NUMBER N/A
TIME 12:00 Noon-1:00 PM AUDIENCE N/A
NETWORK NPR
PROGRAM Fresh Air

Interview: Former head of the Federal Reserve Alan Greenspan,
author of the new book "The Age of Turbulence," on his memoir and
time at the Fed
TERRY GROSS, host:

This is FRESH AIR. I'm Terry Gross. The publication of Alan Greenspan's new
memoir, "The Age of Turbulence," coincides with criticisms that he's partially
responsible for the current subprime mortgage crisis that has led to problems
in the market and the larger economy. Greenspan was the
second-longest-serving chairman in the history of the Federal Reserve Board
and one of the most powerful. He was appointed by President Reagan in 1987
and retired from the position in 2006 after having also served under
Presidents George H.W. Bush, Bill Clinton and George W. Bush.

During Greenspan's tenure, the Fed brought interest rates to their lowest
levels in years. Critics say those low interest rates created a housing
bubble and made possible the adjustable-rate mortgages with low teaser rates
that have since gone up, causing many people to default on their mortgages and
lose their homes. The Fed is meeting today to decide what to do about
interest rates in the light of the subprime crisis.

Alan Greenspan, welcome to FRESH AIR. What are the risks of dealing with this
financial crisis by cutting interest rates? Are there risks to doing that?

Mr. ALAN GREENSPAN: There are, but there are risks to doing nothing and
there are risks to cutting interest rates, and I'm frankly quite comfortable
that the skill of the Federal Reserve Board, the staff and its chairman as
such that they'll do the correct balance and come out the right way.

GROSS: Let's start with some of the criticisms about your role in creating
the mortgage crisis which has led to a wider financial crisis...

Mr. GREENSPAN: Mm-hmm.

GROSS: ...and there have been a lot of criticisms of your three years of very
low interest rates and how that might have...

Mr. GREENSPAN: I've noticed.

GROSS: ...led to, you know, led to the mortgage crisis. Let me just read a
couple of quotes. This one is from John Cassidy, contributing editor of
Portfolio magazine, and he says, "By keeping interest rates too low for too
long, Greenspan encouraged a borrowing-fueled speculative binge which has now
given way to a credit squeeze. By failing to crack down on the mortgage
industry, he allowed subprime hucksters to peddle dubious loans, which the
financial industry's math whizes packaged for investors."

Alan Abelson, a columnist for Barron's, wrote on August 13th: "Greenspan went
far beyond the call to entice people, no matter what their circumstances, into
buying a home by whacking the cost of credit to as near zero as you can get
and urging them to go for those newfangled, adjustable mortgages with
deceptively low interest rates." Do you think you contributed to the crisis by
lowering interests rates to 1 percent and keeping them very low for three
years?

Mr. GREENSPAN: I do not. First of all, let's understand that we are dealing
with a global situation where not only has there been a housing bubble in the
United States, but there have been bubbles of a significant dimension probably
in 20 or 30 countries throughout the world. And if you match them, United
States' bubble vs., for example, Britain, Australia, Spain, and a large number
of other countries, we're subnormal in that regard. So that the notion that
somehow what's going on in the United States is a result of the Federal
Reserve moving short-term interest rates when housing is determined by 10-year
or 30-year mortgages is just factually inaccurate.

GROSS: The low interest rates coincided with, or led to new kinds of
mortgages, you know, adjustable rate mortgages, mortgages with low teaser
rates, where, on the ground level, you pay next to nothing in interest, but
then the interest rises, and you're possibly going to be hit with an interest
rate that you no longer can afford. And that's how a lot of people defaulted
and that's in part what led to the whole mortgage meltdown, which leads to a
question I want to play for you. I recently interviewed Robert Reich, who was
the secretary of labor in the Clinton administration. You probably know him
from...

Mr. GREENSPAN: I know him quite well, yes.

GROSS: ...those days. And I told him in the interview that I was going to
interview you and I asked him if he had a question that he'd recommend I ask
you. And I want to play you his response to that.

Mr. GREENSPAN: Mm-hmm.

GROSS: Here's his question.

(Soundbite of Robert Reich interview)

Mr. ROBERT REICH: Well, one thing you might ask him, and I'd love to ask him
this question, I--maybe I'll just call him up one day--I know him. Why did
the Fed reduce interest rates so dramatically in 2002 without increasing the
supervision of the lending institutions that would obviously use such cheap
money to get a lot of people to borrow, maybe irresponsibly if they were not
sufficiently overseen. Having created the conditions for cheap money that led
to the prime mortgage meltdown, why didn't the Fed do more to try and stop and
regulate...

GROSS: Mm-hmm.

Mr. REICH: ...those mortgage lenders?

(End of soundbite)

GROSS: Well, Alan Greenspan, you heard Robert Reich's question. How would
you answer it?

Mr. GREENSPAN: Well, basically, the whole subprime mortgage issue and the
role that the Fed played in it, and indeed that I played in it, which was part
of your last question, which I didn't get a chance to answer, I think--let me
just start off for a minute with what the facts are on the question of whether
I encouraged various forms of subprime lending that was adjustable rate, which
is the critical question here. Because remember, there's a good deal of
subprime lending which is largely fixed rate, and they're doing exceptionally
well. And remember, we want to encourage subprime markets, basically because
what they are doing is allowing lots of people in lower income groups to
become home owners, and when you have a capitalist society of the nature in
which we do and property rights are critical, the system will not be able to
sustain itself unless it has the support of the populace. So I have always
been a supporter of broadening the issue of mortgage markets so that lots of
people can actually become home owners. There is a risk in that, but the risk
is small relative to the advantages that we get.

Now, with respect to my issue here about encouraging this, there's been very
poor reporting on this. It all comes from a speech that I made in February of
2004 which I reported on some very interesting analysis by the Fed staff about
the costs involved in taking out long-term mortgages if you are the type of
person who may only plan to live in the home for two or three years, doing an
adjustable-rate mortgage under those conditions makes a lot of sense. And
when I made that particular speech, the notion that subprime mortgages were
rising and becoming important was never on the table. So that when I was
asked a week later at the Economic Club of New York, was I essentially
degrading the 30-year mortgage in favor of the adjustable-rate mortgage, I
said no, I was talking about a very special case and, indeed, whenever I took
out a mortgage, it was a fixed-rate 30-year mortgage. I thought that the
actual insurance that you take out against interest rate changes, in my
judgment, was worth it. So...

GROSS: Let me get to Robert Reich's question again, though, like...

Mr. GREENSPAN: Yeah.

GROSS: His question is when interest rates got so low and all these new
mortgages came about, why didn't you do more to supervise the lending
industry, knowing that they might, you know...

Mr. GREENSPAN: For--yeah.

GROSS: ...they might do predatory things.

Mr. GREENSPAN: For very good reasons. First of all, there is no question in
my mind that there are a good deal of predatory lending going on. This type
of action, which is essentially fraud, is a criminal offense and something
which Federal Reserve regulators, or examiners, are ill prepared to actually
supervise, and, indeed, we were very good at looking at balance sheets and
judging concentration risks but extremely inept on all criminal issues. And I
have argued very strenuously that this is the job of state attorney generals,
and I say in my book that we're dealing with a situation which you need more,
not less addressing of fraud, because it's very dangerous for the market and
it's very dangerous for the people who get caught up in that.

I was very concerned, if we would get engaged with our capabilities, trying to
address the subprime issue and the adjustable-rate mortgage issue because I
was--and a lot of my colleagues--was aware that we're dealing with the types
of organizations that if were seen as regulating them, they'd put that fact in
their window, and my fear is that instead of actually improving the situation,
we could very well have made the situation worse. So all in all, the subprime
problem is indeed a derivative of the housing boom generally, which in turn is
the result of the very strong global forces over which neither the American
central bank or any other bank had any particular control.

GROSS: If you knew then what you know now, would you have done anything
differently?

Mr. GREENSPAN: I doubt it very much. In fact, I find myself looking back at
that particular period and while obviously we would have preferred that we
were not in that particular bubble, I thought that the actions that we were
involved in were the correct actions, and I do to this day.

GROSS: My guest is Alan Greenspan, the former chair of the Federal Reserve
Bank. He's written a new memoir called "The Age of Turbulence." We'll talk
more after a break. This is FRESH AIR.

(Announcements)

GROSS: My guest is Alan Greenspan, the former chair of the Federal Reserve
Board. He's written a new memoir called "The Age of Turbulence."

If you're just joining us, my guest is Alan Greenspan. He was the chairman of
the Federal Reserve for 18 years. He has a new memoir called "The Age of
Turbulence."

Let's talk a little bit about your work with the George W. Bush
administration. You served with both President Bushes. Let's talk about
George W. Bush. When President Bush was inaugurated, there was a huge
surplus that was left over from the Clinton administration, and that actually
worried you. You say in your book chronic surpluses can be as destabilizing
as chronic deficits. Why were you worried about the destabilization aspects
of a surplus?

Mr. GREENSPAN: You know, strangely enough, my realization of what the
problems were came as a real shock to me because I never thought with the
propensity towards spending more than our incomes, we would ever get to the
point where we would be concerned that there was too much surplus. The
problem is a technical one. If you have budget surpluses which are reducing
the national debt, at some point, the national debt will disappear--and
indeed, it was projected to disappear in 2001 by the year 2006--and if you
have continuing surpluses and they were at that point projected at $500
billion a year, after you've paid off all of the debt, you have to accumulate
private securities. And I was very much concerned that, having watched the
administrations of Lyndon Johnson and Richard Nixon, that having huge
quantities of private instruments--bonds and stocks and the like--which would
let them, if they chose, to control what the private sector was doing, was a
very dangerous trend. And indeed I must say that President Clinton had some
small aversion to that, and he told me subsequently when he heard my arguments
about it, he dropped the idea.

GROSS: So you were worried that if the government ended up invested a lot of
money, a lot of surplus in the market, that it would be unhealthy for the
market? It would give the government too much control. So when...

Mr. GREENSPAN: Very much so.

GROSS: So when President Bush proposed his massive tax cut program, your
first impressions were?

Mr. GREENSPAN: I thought the ideal solution to this was to cut taxes in a
manner which, by the time we got to 2006, the surplus had disappeared. And,
indeed, either the Bush tax cut or what was in fact the Democratic leadership
cut, which was somewhat smaller, would have served my purpose. I was in favor
of a tax cut, not necessarily the Bush tax cut, and I made that very clear in
my formal testimony before the Senate on that issue.

GROSS: So you wanted a tax cut because you didn't want too much of a surplus,
because you didn't want the government investing a lot of money in stocks and
bonds and therefore having too much control over the market and...

Mr. GREENSPAN: And American business and jobs.

GROSS: Right. OK. But then when you saw the magnitude of President Bush's
tax cuts and when you watched him keep cutting taxes even when the fiscal
situation had changed, when there was no longer a surplus, when there was a
war in Iraq, when there was soaring deficits, at that point, what did you
think of the Bush tax cuts?

Mr. GREENSPAN: Well, I was arguing that the tax cut needed to be matched by
a reduction in either spending or other taxes because we eliminated,
regrettably, as the surplus began to arise all of the fiscal restraints that
had been put in place 10 years earlier, and indeed I testified on several
different occasions to that. I always made my support of any of the tax cuts
conditional on cuts in spending.

GROSS: Were you surprised to see Republicans like President Bush and others
in his administration turning against deficit hawks like the president's own
Treasury secretary, Paul O'Neill? Did it match with what you expected from a
Republican administration?

Mr. GREENSPAN: No, it did not. I thought that that was most unfortunate
and, indeed, where I've had my strongest concerns is the fact that we have
this major problem confronting us with a very substantial number of the baby
boomers just now beginning to retire, and that volume is going to turn into a
flood as we get into the next decade. We have not properly funded Medicare.
Indeed, by some estimates, it's only half funded, and what we have promised a
very large number of people are Medicare services which, under the current law
and the current expectations of the economy, government is not going to be
able to deliver. This, to me, is unethical, if not bordering on immoral
because remember, if people knew that they would not be able to get as much
Medicare as they're currently being promised, they would take actions about
their retirement. They might delay their retirement. They might do other
things. But to confront them with the fact that they will not be getting what
has been promised after they've retired is really very unfair.

GROSS: Did you ever hear President Bush worry about how he was going to fund
the war in Iraq, how he was going to pay for that?

Mr. GREENSPAN: Well, you know, what's interesting about this is that the war
in Iraq costs a lot of money. But when you compare it to the size of the
economy and you look back at Vietnam and the Korean War and obviously World
War II, the actual amount of GDP which is being absorbed by both the war in
Iraq and Homeland Security and all the various other initiatives that occurred
after 9/11, it's still a very small number, because it's only a little over 4
percent--the defense budget overall is a little over 4 percent and it got up
to 8 and 9--I say 4 percent of GDP, and it got up to 8 and 9 percent during
the Vietnam War and over 14 percent during the Korean War.

So the issue never really becomes an economic issue, because it seems absurd,
of course, that the huge amounts of money that are being spent for the war are
not impacting the economy, but the truth of the matter is we have grown into a
such a huge economy that we're actually able to absorb it without any
indication or any negative effects occurring within a domestic economy.

GROSS: I guess what you're saying confuses me. Because, you know, as we were
saying, when President Bush took over, there was this huge surplus, so big
that you were worried about it being far too big, and now there's this huge
debt, in part because of the war in Iraq coinciding with these huge tax cuts.
Are you saying you're not concerned about the amount of debt that we face now
as a nation?

Mr. GREENSPAN: Well, actually, the debt levels relative to GDP and, indeed,
the deficits relative to GDP are historically quite small. The real problem
is not now. It's just utter lack of attention or failure to even want to
confront the very substantial problems for financing Medicare, especially in
the years ahead, and I must regrettably say that it is true both of
Republicans and Democrats. I'm listening to the debates that are going on
amongst those who are seeking the presidency, and nobody is recognizing what
every technician has been telling all of the politicians, that this issue has
got to be addressed. If we don't, it's going to create very serious fiscal
problems for the country. It's not the current data that is so critical, it
is basically the failure to address the future.

GROSS: Alan Greenspan is the former chair of the Federal Reserve Board. His
new memoir is called "The Age of Turbulence." He'll be back in the second half
of the show. I'm Terry Gross, and this is FRESH AIR.

(Announcements)

GROSS: This is FRESH AIR. I'm Terry Gross back with Alan Greenspan. He
served as chairman of the Federal Reserve Board from 1987 to 2006 and was one
of the most powerful chairs of the Fed in history. He's written a new memoir
called "The Age of Turbulence."

When we left off, we were talking about how we went from a huge budget surplus
during the Clinton administration to a huge debt during the Bush
administration. Greenspan was saying he's not so worried about the money
we're spending in Iraq, he's worried about how we're going to finance Medicare
as the baby boomers become eligible for benefits.

You've complained that people in the Bush administration have said deficits
don't matter. Are you saying the same thing?

Mr. GREENSPAN: No, I'm not. I'm just saying that the size of the Medicare
problem, the deficit that will be coming from the Medicare problem in the
years ahead outweighs even the very large impact that the war costs are. I'm
trying to say that we've got to address the Medicare issue, and unless we do
it very soon, we're going to find that we're creating very serious imbalances
in the American economy. And what I'm concerned about is every revision or
expansion of Medicare is more rather than address the financial problem.

I mean, for example, one particular problem I had with George Bush was his
prescription drug program, for which he created no means of financing. This
is a huge number, and unless it's essentially addressed along with the other
shortfalls in Medicare, we have very serious problems. I'm not downplaying
the issue of what the war is costing, because the war is costing us a very
great deal of money, and I must tell you I've not been a great fan of the way
this has all turned out. But where we really have to act now is our Medicare,
where the orders of magnitude of the numbers are much larger than even the
large numbers we're now confronted with on the war.

GROSS: Just briefly, what kind of action would you like to see?

Mr. GREENSPAN: On the Medicare issue?

GROSS: Mm-hmm.

Mr. GREENSPAN: I would like everyone to recognize that--remembering that
Medicare is not a financial issue, it's real resources. We need to make
certain that there are an adequate number of hospitals, physicians, nurses,
and a whole medical infrastructure, including a pharmaceutical industry to
supply the medical services which this very large retired population is going
to require. And that in order to do that we have to realize that we cannot
solve the problem by raising taxes, because there comes a point at which you
actually undercut the ability of the economy to grow and create tax revenues.
So every analysis that I've seen basically says, no matter how you solve or
fund this problem, taxes are not enough and there have to be some adjustments
in the basic, underlying Medicare benefit. And if we are going to do that, it
is essential that we communicate to the retirees that there will be some
adjustments. Because they have to be, one form or another.

My solution, and I suspect it's more of a forecast knowing the way politics
work in this country and know what the economics of it are, is that we're
going to end up with people like myself paying virtually all of the medical
costs myself, in other words 100 percent co-payments. And it will be very
substantially the case that the upper middle and upper income groups will be
getting ever less Medicare assistance, and that Medicare will be essentially
for middle classes and for anyone, say, below certain a level of income. We
can't afford the entitlement for everybody, and I think we must focus it on
those who are most needy and require it. That's the solution which is going
to come out politically. The sooner we do it, the better off we are.

GROSS: You write in your book that the Bush administration turned out to be
very different from the reincarnation of the Ford administration that you had
imagined, and that in the Bush administration, the political operations were
far more dominant, and you say about George W. Bush, for many party leaders,
altering the electoral process to create a permanent Republican-led government
became a major goal. What did you witness of that, altering--do you feel like
you witnessed that firsthand?

Mr. GREENSPAN: Well, I was observing, like everybody else. First of all you
began to get various leadership in the House talking about the smaller
government which was fundamentally the principals of the Republican Party
which I was familiar with. Remember, I'm in the libertarian wing of the
Republican Party, and to me, smaller government and more freedom, more civil
liberties are all part of the type of post-enlightenment society I would like
to live in, and I think that Republican views essentially go around. What I
began hearing is something quite different from that, and, ultimately, as I
say in the book, the Republican Congress swapped policy for power and, in the
end, achieved neither.

GROSS: Let's get to Black Monday, October 19th, 1987, when the market dropped
22.6 percent. You'd been chairman of the Fed for only 72 days when that
happened, so you were pretty new to the game. What were the things that you
worried about most on Black Monday?

Mr. GREENSPAN: Oh, American economic and financial history, because never in
my experience had we seen a sharp decline of that nature without eventually
destabilizing both the financial system and the economy. And, indeed, the
next several days were highly unstable, and we came a lot closer to really
serious contraction than I think anybody realized at that time. And then, for
example, the New York Stock Exchange was in a position where it thought it
might have to shut down because their bids for stocks were disappearing, and
had we shut down the New York Stock Exchange a day or two after Black Monday,
we would have had very considerable difficulty re-opening it, and that could
have had a major negative impact on the economy.

GROSS: Why would it have been had to re-open it?

Mr. GREENSPAN: Well, basically because when stock markets are falling,
people are very frightened. They see their net worth going down, and even
though they often know that if they sell at that particulate point, they may
be doing some silly thing, but the physical pain of watching what was going on
was such that they needed to disengage. If on top of that you eliminate the
actual potential safety valve of liquidating, which is the market being open,
you create a much higher level of fear, which could impact directly on
economic activity, and that's something which we try to avoid under all
circumstances.

GROSS: My guest is Alan Greenspan, the former chair of the Federal Reserve
Board. He's written a new memoir called "The Age of Turbulence." We'll talk
more after a break. This is FRESH AIR.

(Announcements)

GROSS: If you're just joining us, my guest is Alan Greenspan, and he was the
chairman of the Federal Reserve for 18 years. He's written a memoir called
"The Age of Turbulence."

I want to ask you about two famous words that you used on December 5th, 1996,
in making a speech to the American Enterprise Institute, the conservative
think tank. You said, `How do we know when irrational exuberance has unduly
escalated asset values?' And after you said that, markets around the world
dropped because they figured that you were getting at something here that we
were actually facing, irrational exuberance.

Mr. GREENSPAN: You know what's interesting about, you know--it was actually
a question: how will we know when...

GROSS: Mm-hmm.

Mr. GREENSPAN: The market interpreted it as, `We have and are involved in an
irrational exuberance and we're going to get very serious consequences as a
consequence of that.' It's one of those very odd experiences I had as Federal
Reserve chairman when I thought I was discussing largely an academic issue. I
recognized that, when I thought about it, that we were approaching a bubble,
and a lot of people could get concerned. And indeed they did. I mean, the
Japanese market after I talked, in the evening went down, but within two days
it was back where it was.

GROSS: How did you come up with the words "irrational exuberance"?

Mr. GREENSPAN: I wish I hadn't. But it actually captured exactly the issue
I was trying to make, because exuberance is a normal human activity which is a
potent force in market expansion. Irrational exuberance is when you project
that exuberance in a manner which is utterly realistic for the future. And
that was precisely what I was concerned about, because it's that state which
is when bubbles burst and everyone runs in the other direction.

GROSS: How do you deal with your own portfolio when you're worrying about
like the nation and the world economy?

Mr. GREENSPAN: Well, frankly, when I was chairman of the Fed, I realized
that any actions I would take would have some effect on my net worth. There
was no way to get out from under that fact...

GROSS: Mm-hmm.

Mr. GREENSPAN: So I called together a little group of senior financial
experts within the Fed to craft a policy for me which would insulate me as
much as possible, and I guess I went out of way to see that my rates of return
on assets were below normal, and I must say I succeeded.

GROSS: Is there any kind of rule requiring you to, like, put your stocks in
some kind of blind trust or something so that you can't intentionally
manipulate policy to improve your own portfolio?

Mr. GREENSPAN: Strangely, aside from the issue of owning stock in banks,
there are very few restrictions on what Federal Reserve governors can do with
their own personal finances. But we have to go far beyond--well, I had to go
certainly far beyond the letter of the law because I was acutely aware that
even holding currency would have potential implications on my net worth by the
actions we took. It was one of the more difficult problems I had.

GROSS: My guest is Alan Greenspan. He was chair of the Federal Reserve for
18 years. Now he's written a memoir called "The Age of Turbulence."

You met Ayn Rand at a very important time in your life when you were a young
man. Was it just out of college?

Mr. GREENSPAN: Well, I was 26, I believe.

GROSS: Mm-hmm. And...

Mr. GREENSPAN: Which, I guess was just, I guess you could say just out of
college.

GROSS: And, you know, Ayn Rand described herself as an objectivist and she
and her followers believed, among other things, in unregulated capitalism.
And you of course spent a good deal of your professional life as a regulator
at the Fed.

Mr. GREENSPAN: Mm-hmm.

GROSS: So, you know, you both believed in what Ayn Rand believed, and also
you describe yourself as a libertarian, and a libertarian, of course, is
somebody who wants minimal government regulation. You say that when you first
became head of the Council of Economic Advisors, you knew that you would have
to pledge to uphold not only the Constitution, but also the laws of the land,
many of which you thought were wrong. And I was wondering, which ones? Which
ones did you think you'd have the hardest time following?

Mr. GREENSPAN: Well, there are a lot of them, but remember that the critical
issue is we live in a democracy, and a democracy means we all have differing
ideas, and if we're going to get a rule of law, a lot of us--indeed, probably,
all of us--have to compromise to certain extents. Not with our fundamental
principles, but with how we think various different situations should be
governed. And I concluded, as much as I--actually inaccurately, thinking that
I would have to become a significant regulator as Federal Reserve chairman.
It turned out that I didn't, that the general focus of regulation in the
Federal Reserve was not all that different from where I had been.

But I was confronted with the question, `Do I want to be a pamphleteer
economist advocating positions which I obviously admit is a minority position,
or do I want to get involved and try to move things at least somewhat in the
direction of my libertarian views, if I possibly can?' And I chose the latter,
but I was very much acutely aware of the fact that if I believe in the rule of
law, I've got to abide by the law, which means including those laws with which
I disagreed. And I endeavored to do that during my career.

GROSS: How did you reconcile being a libertarian, not wanting government
intervention and regulation, and having one of the most powerful regulatory
positions in the country and, in a way, in the world?

Mr. GREENSPAN: Well, actually, we were not fundamentally regulators. The
vast proportion of our efforts were not involved in bank regulation...

GROSS: Yeah, but you're regulating interest rates, which have a profound...

Mr. GREENSPAN: Oh. Well.

GROSS: ...effect on the world's economy.

Mr. GREENSPAN: Well, you're raising a really very interesting question. I
have always argued that the gold standard of the 19th century was a very
effective stabilizer. It kept inflation essentially at zero and, I thought,
was critical for the tremendous growth that occurred in the American economy
in the latter part of the 19th century. And when we went off the gold
standard in essentially 1933, we then had to have what we call fiat money,
which is essentially money which--it's printed paper money, which unless we
restrict the volume of can be highly inflationary. And the type of interest
rate regulation that I--and, indeed, most central banks in the last 20 years
have been involved in; it's more than that I suspect--has been to try to
replicate the laws and the rules that were governing the gold standard.

And so it's an odd situation where all the central bankers--well, none of them
are advocating a return to the gold standard--nonetheless try to replicate the
various types of interest rate policies which the gold standard would have
then created, and it's an interesting question whether you call that
regulation or basically functioning of the central bank as stabilizing the
economy.

GROSS: Alan Greenspan, thank you so much for talking with us.

Mr. GREENSPAN: My pleasure.

GROSS: Alan Greenspan is the former chair of the Federal Reserve Board. His
new memoir is called "The Age of Turbulence."

Back in the mid-1940s, Greenspan played in a jazz band called The Henry Jerome
Orchestra that included people who became better known for their music than he
did, like Al Cohn and Johnny Mandel. But it also included Leonard Garment,
who later served as special counsel to President Nixon. Here's an aircheck of
a radio broadcast featuring Greenspan with the orchestra.

(Soundbite of aircheck)

Announcer: Well, I don't care how far rigor mortis would have set in, here's
a tune that, when you hear it, the Henry Jerome arrangement of it, you've just
got to get up and dance no matter what you're doing. It's "Just You, Just
Me." Dig it!

(Soundbite of "Just You, Just Me")

(End of soundbite)

GROSS: Coming up, Maureen Corrigan reviews a new book about Gertrude Stein
and Alice B. Toklas by Janet Malcolm. This is FRESH AIR.

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Review: Maureen Corrigan looks at Janet Malcolm's book "Two Lives"
TERRY GROSS, host:

On her deathbed in 1946, Gertrude Stein turned to her companion of nearly 40
years, Alice B. Toklas, and reportedly asked, `What is the answer?' When
Toklas was silent, Stein went on to speak her famous last words, `In that
case, what is the question?' In her new book on Stein and Toklas called "Two
Lives," writer Janet Malcolm discovers still more questions, silences, and
some answers about the life that Stein and Toklas shared together. Book
critic Maureen Corrigan has a review.

MAUREEN CORRIGAN reporting:

If you want to read a genuinely haunting piece of writing about the limits of
language as a means of nailing down truth, read the conclusion of Janet
Malcolm's 1995 book on Sylvia Plath and Ted Hughes called "The Silent Woman."
In the last pages of that book, Malcolm describes her visit to an elderly man
who was once Plath's neighbor. She steps into his kitchen and sees rotting
food, boxes, papers, garbage and dust upon dust everywhere. Rather than
skedaddle out of this hellhole, Malcolm sees the kitchen as the embodiment of
the difficulty anyone faces when trying to write, the doomed effort of
selecting out of the jumble of one's memory and imagination just a few telling
words. That ending to "The Silent Woman" is so defeatist it could have served
as Malcolm's own way of giving notice as a writer, biographer and literary
journalist.

But self-consciousness about the art of writing isn't a crippling condition
for Malcolm. Rather, it's her obsessive subject. Whether she's investigating
shenanigans in the Freud archives or techniques of photography or journalistic
ethics, she's always also ruminating on the essential conundrum of writing,
that by ordering thoughts and impressions into narrative, a writer
simultaneously reveals and distorts truth.

It's little wonder, then, that Malcolm has finally turned up at the doorstep
of Gertrude Stein, the modernist writer whose sentences resist the
straightjacket of grammar and whose big, baggy books defied editing. Stein's
voluminous writings are about as close as we come in canonical American
literature to that chaotic kitchen, and so part of the delight of reading "Two
Lives," Malcolm's provocative book on Stein and her long-time companion Alice
B. Toklas, derives from watching Malcolm, who's such an elegant and precise
writer, discover the fun of wallowing in Stein's mess.

As always with Malcolm, "Two Lives" is many books at once, most obviously a
slim biography of Stein and Toklas that zeroes in on their life in France
during World War II. It's not as though no one has ever before raised the
question of how two Jewish lesbians managed to live out the war calmly in a
village in Vichy, France, but somehow most other investigators get distracted
by Gertrude's charm in her autobiographical writings about the war. Or by the
pair's silence. Neither Stein nor Toklas ever publicly acknowledged the fact
that they were lesbians or Jews.

What Malcolm discovers about the pair's wartime immunity isn't complimentary.
Stein had an admirer, Bernard Fay, who was an extreme right-wing Catholic and
a collaborator. He was responsible for deporting Jews. Fay, who even had a
Gestapo agent as a lover, put in a protective word for Stein and Toklas, and
so they were allowed to lie low. That Stein would have had such a friend,
Malcolm tells us, is no surprise. She herself was an arch-conservative who
hated Roosevelt and the New Deal and supported Franco during the Spanish civil
war.

What democratic impulse Stein may have lacked in politics, she had in spades
in her writing. Stein was hell-bent on resisting the hierarchy that normal
sentence structure imposes. Hence, `rose is a rose is a rose is a rose.' But
are books filled with flat sentences like this worth reading? That's the
question that any ordinary time-challenged human being asks upon confronting
Stein. Malcolm endearingly confesses that the only way she managed to read
Stein's 900-page 1911 opus, "The Making of Americans," was to slice up the
novel into sections with a kitchen knife. Here's what she ultimately finds
once she stops chopping and starts reading:

(Reading) "Stein seems to be transcribing rather than transforming thought as
she writes. The alacrity with which she catches her thoughts before they turn
into stale, standard expressions may be the most singular of her
accomplishments. Her influence on 20th century writing is nebulous. No
school of Stein ever came into being. But every writer who lingers over
Stein's sentences is apt to feel a little stab of shame over the heedless
predictability of his own."

Malcolm shouldn't be so indirectly hard on herself. Her sentences and the
insights they convey have never been predictable. In "Two Lives" Malcolm pays
tribute to Stein's canny way with words, while at the same time giving us a
Stein who may have been somewhat too conveniently canny in her political
dealings.

GROSS: Maureen Corrigan teaches literature at Georgetown University. She
reviewed "Two Lives: Gertrude and Alice" by Janet Malcolm.

If you'd like to catch up on interviews you've missed, you can download
podcasts of our show by going to our Web site, freshair.npr.org.

(Credits)

GROSS: I'm Terry Gross.
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