3. Ben Bernanke and Alan Greenspan

Former U.S. Fed chairs

Benjamin Wachenje
"I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant." -Alan Greenspan

Former Chairman, U.S. Federal Reserve
Born: March 6, 1926, New York City (Greenspan); Dec. 13, 1953, Augusta, Ga. (Bernanke)
Education: Bachelor's, master's and Ph.D. in economics, New York University (Greenspan); bachelor's and master's in economics, Harvard University, and Ph.D. in economics, Massachusetts Institute of Technology (Bernanke)

No public official has a greater effect on the U.S. economy than the chair of the Federal Reserve. Just two men have occupied that position for all but a few months of the past 25 years. We pair them on our anniversary list of the 25 most transformative leaders, icons and rebels of the past quarter-century because of that historical arc and because, while both are eminent in their own right, it is impossible to separate their influence from their roles as heads of the U.S. central bank.

Their tenures are almost neatly separated by the 2008 global financial crisis. Ben Bernanke took over from Alan Greenspan in February 2006. Like his predecessor, Bernanke came from chairing the Council of Economic Advisors although, unlike Greenspan, he had served as a Fed governor. The two men's tenures would be colored by their earlier careers: Greenspan's in the private sector, Bernanke's as an academic, notably at Princeton University.

"I've never been on Wall Street. And I care about Wall Street for one reason and one reason only because what happens on Wall Street matters to Main Street." -Ben Bernanke

The first of Greenspan's five terms started immediately before the 1987 financial crisis. His response was to affirm the Fed's willingness to supply the financial system and markets with all the liquidity they required. He then raised real interest rates to contain the subsequent inflation and lowered them when growth slowed—a conventional monetary policy prescription he repeated with each successive crisis.

Greenspan left the Fed to great praise for his sure touch in saving the world economy from the stock market crash of 1987, Russia's default and the near collapse of the hedge fund LTCM in 1998, and the recession that followed the dot-com bust in 2000-01. He oversaw low and stable inflation, the two longest expansions of the U.S. economy, and only two mild recessions.

Nonetheless, America also experienced the biggest stock market and housing bubbles on record during Greenspan's time at the Fed. His final credit bubble—pumped up by low interest rates after 2002 as deflationary concerns took hold of policymakers—is held to have been a leading cause of the subprime mortgage crisis that occurred within months of his departure and triggered the 2008 crisis.

The Fed was caught flat-footed by the scale of the housing bust, which triggered the worst financial crisis and recession since the Great Depression. The initial diagnosis of a conventional liquidity crisis was wrong, as was Bernanke's comment after taking over from Greenspan that he foresaw a "soft landing" for the economy.

The rest of Bernanke's term was spent in extraordinary acts of central banking that tested a promise he had made while a Fed governor—that the Fed would never allow another Great Depression—and his conviction that a central bank can stimulate an economy, even when it has no more room to cut interest rates.

Not enough time has passed to determine the extent of Bernanke's sins of omission as a monetary policymaker in the run-up to the crisis, or how they compare with Greenspan's sins of commission. Yet history will likely judge Bernanke well for managing the U.S. economy's stabilization and recovery, despite early missteps such as letting Lehman Brothers fail after bailing out Bear Stearns, which spooked already rattled investors.

His area of academic expertise, the Great Depression, was fortuitous. By risking the Fed's balance sheet on an unprecedented scale to stabilize the banks and financial system, Bernanke avoided the policy mistakes of the 1930s that tipped recession into depression. The Great Recession did not turn into a second Great Depression in large part because of him.

Once the immediate crisis had passed, the U.S. economy still faced deflation. It was growing slowly, with stubbornly high unemployment and interest rates at zero. The Fed made billions of dollars of asset purchases and promised that short-term interest rates would remain low for the duration in an attempt to stimulate the economy by bringing down long-term interest rates. Bernanke's successive rounds of quantitative easing was unconventional central banking using innovative tools in uncharted territory for monetary policy—done with scant support from Congress on fiscal policy from 2010 onward.

Despite being the center of the financial crisis, the U.S. outperformed most of the world's other advanced economies. That is a low bar, however. Neither jobs nor growth have returned to their historic pace, and the fear remains that inflationary forces may eventually break free. Bernanke's legacy will depend on whether his successors can unwind his massive stimulus without an accident.

Ben Bernanke & Alan Greenspan: Points of interest

  • Played the saxophone as teenagers (Greenspan and Bernanke)
  • Studied jazz clarinet at the Juilliard School, where he played in Woody Herman's band (Greenspan)
  • Had second-longest tenure as Fed chairman after William McChesney Martin (Greenspan)
  • Chaired economics department at Princeton, 1996-2002 (Bernanke)
  • Said Fed wanted to rescue Lehman Bros.but that, had it or the Treasury done so, Congress probably wouldn't have voted funds for the Troubled Asset Relief Program (TARP) (Bernanke)
  • Supports Washington Nationals baseball team (Bernanke)

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