Maestro — Chapter 2

1. 1. The 1987 stock market crash was triggered by computer-driven trading that automatically dumped large blocks of stock when prices fell, amplifying declines.
2. 2. After the crash, banks avoided borrowing at the Fed's discount rate to hide weakness, making the federal funds rate the primary policy tool.
3. 3. Greenspan argued for consensus at the February 1988 FOMC meeting, warning that a tightening signal would break the stock market.
4. 4. Greenspan resented Treasury pressure to cut rates and threatened to do the opposite if it continued.
5. 5. Greenspan's apparent passivity in FOMC meetings actually gave him operational control over the timing of rate changes.
6. 6. By June 1988, Greenspan raised the fed funds rate to 7.5% to preempt inflation, which was hovering above 4%.
7. 7. Greenspan and Johnson devised a strategy to raise the discount rate in August 1988 to reduce pressure from bank presidents for a fed funds rate hike.
8. 8. Greenspan personally informed Treasury Secretary Baker of the discount rate hike just before the announcement, despite Baker's political concerns for the Bush campaign.
9. 9. Greenspan's operating style combined intellectual engagement with emotional detachment, indirectness, and deference to political power.
10. 10. Greenspan's father, Herbert, predicted a recovery in 1936 that initially came true but was followed by a market collapse in 1937.
11. 11. Greenspan studied under Arthur Burns at Columbia, who taught that excess government spending causes inflation.
12. 12. In 1958, Greenspan accurately forecast a sharp reduction in steel production, learning that accurate bad news is as valuable as good news.