Columbia Business School Professor Abby Joseph Cohen Talks Alan Greenspan, FOMC

**SPEAKER_1** (0:02)
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**Tom Keene** (0:07)
She is simply iconic. Abby Joseph Cohen was with Goldman Sachs for years, definitive on the equity markets, a pinata for the bears, beaten up on her constantly as the market went up and up. We'll show a great chart of that here in a moment, and then wander to something more magical. Columbia Business School teaching grizzled graduate students. What did you, thrilled to have you here, what did you say to the graduate students this week about Alan Greenspan?

**Abby Joseph Cohen** (0:33)
Well, first of all, Tom and Lisa, I'm delighted to be here with you today.
There's so much to say about Alan Greenspan, and so much has already been said. There were two personal episodes that I had with Alan, and both of them left me smiling when I thought about it. And let me discuss the first one, which is the more recent one. Not that long ago, just a handful of years ago, Alan published a book that he had co-written with Alan Woodridge from, Woodridge rather from The Economist, about capitalism in the United States. And it was so incredibly sharp. They asked me to moderate the panel, and the discussion with him at that point was right on topic. And to your point, one of his concerns had to do with budget deficits and also social security.

**Tom Keene** (1:30)
I look at Alan Woodridge's work with our editor-in-chief John Mickelthwaite, and it is that horse historical construct. The Greenspan critics will say he got wrong regulation. Did you perceive that while sitting at Goldman Sachs?

**Abby Joseph Cohen** (1:44)
When I met with Alan and other members of the FOMC, I did talk about the regulatory aspect. And the thing that was interesting to me is that they were well aware of some of the problems that were developing in the housing market, for example, and in the subprime credit market, and that was his biggest concern. Now, the so-called irrational exuberance speech, which so many people think was about the stock market, I had met with him just a few days before. I think that speech was largely about fixed income markets. He was concerned, for example, about the inadequate risk premia in corporate bonds.
He was also concerned about the inadequate risk premia in sovereign markets outside the United States, particularly for some of the smaller, newer countries that had not yet established themselves or established their credibility.

**Lisa Mateo** (2:35)
Can you explain why, Greenspan, why he is his key to understanding today's Fed?

**Abby Joseph Cohen** (2:42)
Yeah, I think that his approach was an important one. First of all, very long dated. He wasn't terribly interested in the short-term market moves either in stocks or bonds, number one. And number two, he and the team spent a great deal of time looking at economic developments. What was happening, not month to month, but the underlying structure. And one of the conversations I remember most with Alan and the FOMC had to do with work that I had done in the early 1990s about the technological changes underway in the US economy. What that meant in terms of providing problems, analyzing data, because we weren't collecting the data properly.

**Tom Keene** (3:28)
It's like she knows her script. It's like she was in the planning meetings for Bloomberg money. Let me do this, Abby. I got to bring this up, Abby. This is from her most famous paper on Aristotle, and it's the giant Peter Bernstein. It is one thing to set up a mathematical model that appears to explain everything. That sounds familiar. Our lives team with numbers, but we sometimes forget that numbers are only tools. That's where we are right now, isn't it?

**Abby Joseph Cohen** (3:54)
That's exactly where we are, and the training I received as a junior economist at the Fed helped set me up in terms of looking at things in that way. In addition, looking at the economy in the 1990s, recognizing that economic data were not picturing and not capturing what was happening in the newer, faster growing segments of the economy.
Same thing is happening right now. Very often, we forget that GDP and so many of the other statistics are samples, right? We won't know for three years or four years what the real numbers were because we're working off of samples. If those samples are based upon the companies and industries that used to be important, rather than the ones that are important or will become important, we mislead ourselves in terms of what's going on.

**Lisa Mateo** (4:46)
Would you be able to dig into some of the dilemmas that are facing the current FOMC?