Maestro — Chapter 1

1. 1. The FOMC sets the fed funds rate, which gives the Fed control over credit conditions and the economy.
2. 2. At his first FOMC meeting in August 1987, Greenspan warned that the stock market's 30% run-up was creating an overheated economy, but the committee ignored his concern.
3. 3. Greenspan saw rising lead times on deliveries as a warning sign of impending inflation, even though no inflation was yet measurable.
4. 4. Greenspan raised the discount rate by 0.5% to 6% on September 4, 1987, the first increase in over three years, to signal the Fed's inflation-fighting commitment.
5. 5. On October 19, 1987, the stock market crashed 22.6% in a single day, wiping out nearly $1 trillion in wealth.
6. 6. Greenspan issued a one-sentence statement on October 20 affirming the Fed's readiness to provide liquidity, which helped stabilize markets.
7. 7. New York Fed President Corrigan pressured banks to continue lending to each other, using tough talk and appeals to self-interest, to prevent a systemic collapse.
8. 8. Greenspan considered illegal Fed loans to non-bank institutions if necessary, but the crisis was averted without such extreme measures.
9. 9. The market recovered on October 20 after a $60 million purchase of futures contracts triggered a rally, though the cause remains unclear.
10. 10. Greenspan realized that the Fed and other authorities were novices in handling such a crisis, operating in the unknown space between free markets and regulation.