The Man Who Knew: The Life and Times of Alan Greenspan — Thirteen: A REPUBLICAN VOLCKER

1. 1. Mexico's finance minister Jesús Silva Herzog announced to Paul Volcker on August 13, 1982, that Mexico would default on its debt when markets opened on Monday.
2. 2. Volcker had failed to prevent the buildup of Latin American loans during his tenure as New York Fed president and later as Fed chairman.
3. 3. America's top banks had lent Mexico so much that its default threatened their own viability.
4. 4. Volcker secretly provided Mexico with unannounced Fed loans totaling $1.5 billion before the August 1982 crisis.
5. 5. Volcker's monetary policy—raising interest rates to fight inflation—made the debt crisis inevitable by forcing borrowers to repay more than expected.
6. 6. Volcker admitted under Senate questioning that regulators were probably not forceful enough in overseeing banks.
7. 7. In October 1982, the Fed voted to cut interest rates and abandon monetarism, shifting focus from price stability to financial stability.
8. 8. Milton Friedman attacked Volcker at a 1983 White House meeting, blaming him for an inflationary surge in money supply.
9. 9. In April 1983, the Washington Times reported Reagan would not reappoint Volcker, making Greenspan the front-runner for Fed chairman.
10. 10. Greenspan refused to criticize Volcker's regulatory record, arguing that regulators are not better than bankers at judging lending limits.
11. 11. Volcker told Reagan he would serve only 18 months to two years if reappointed, and Reagan decided to reappoint him.
12. 12. Greenspan served as a consultant for Charles Keating's Lincoln Savings and Loan, writing letters supporting its deregulation and exemption from investment restrictions.
13. 13. The Continental Illinois bank run in May 1984 led to the largest bank bailout in U.S. history and established the 'too big to fail' doctrine.
14. 14. Greenspan argued that banks should hold more capital but could not specify a rule, as the appropriate ratio depends on the individual bank.