Former NY Fed President Bill Dudley Talks Alan Greenspan, Warsh

**SPEAKER_1** (0:02)
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**Tom Keene** (0:07)
Joining us now, and without exaggeration, the only exception would be Edward Yardeni, is the number one person I want to talk to now about the legacy of Alan Greenspan. William Dudley is a different Fed president, yes, of the New York Fed and all, but far more, he built Goldman Sachs economics with Ed McKelvey and the rest, a young hazius at the time. Bill Dudley joins us this morning. To me, Bill Dudley, and the phrase I've always used is chart paragraph chart, and it was a people like Hyman and Yardeni at CJ Lawrence. It was the Bear Stearns combine with Mel Passant writing. But more than anyone, it was Goldman Sachs chart paragraph chart.
Alan Greenspan loved that. At the end of the day, he was a market economist, a wean to data.
Do we have anyone that can be like Alan Greenspan in our future or was he a one-off in the history of our economics?

**Bill Dudley** (1:13)
Well, the future takes up a long potential time. I'm sure we'll see someone similar to Greenspan in the future, but you're right. He was a different type of Fed chairman because not only was he very knowledgeable about economics, but he wasn't academic.
He was basically going from the data to the decision-making, rather than from the model to the decision-making. Sometimes when the world changed, he got it right before anybody else did. The best example, of course, was the late 1990s, when there was this productivity boom, and Greenspan held off on tightening monetary policy. So I think he was an exceptional chairman, both in terms of his understanding of economics, his openness to data, his willingness to change his mind and update his forecast.
I think the only really blind spot was really his views about financial stability and regulation. His view was always, you know, we can't identify bubbles in real time, so all we can do is clean up after the fact. And obviously, the great financial crisis showed that cleaning up after the fact is not always the right approach.

**Tom Keene** (2:19)
Well, to get into your excellence at Berkeley and to say, okay, it is about the regulation decision, are we making the same mistakes today that the critics say were made in 5 and 06?

**Bill Dudley** (2:33)
I don't see the same kind of problems, number one, in terms of the market having a lot of assumptions that will ultimately turn out to be wrong. I mean, if you look at 2006, 2007, there was all these assumptions, triple A CDOs are safe, housing markets can never decline on a national basis.
There were just a lot of assumptions that turned out, subprime lending is not risky. All those assumptions turned out to be dramatically wrong. So I think there's risk to financial stability today. Obviously, in the non-bank financial sector. But the other thing is we have a much more robust regulatory regime. I know we're in the process of dismantling that to a degree. I think it's important that we don't throw the baby out with the bathwater. But we did learn a lot of good lessons from the financial crisis that I think means that the financial system fundamentally is stronger than it was back then.

**Paul Sweeney** (3:21)
Putting all that together, Bill, what do you think the legacy is for Mr. Greenspan with our little bit of a hindsight here?

**Bill Dudley** (3:29)
I think he's obviously going to go down in history as a great central banker. Also go down as someone who was really politically adept. I mean, he navigated through Democratic and Republican administrations really well, and didn't have the kind of conflicts that a lot of other central bankers have run into, like Jay Powell, for example.
So I think that combination of good economic intuition, reliance on data, ability to navigate through Washington really well, is pretty special. I just wish he had done a little bit better on the financial stability regulatory side. If he did that, he'd sort of get straight A's.

**Paul Sweeney** (4:06)
Let's fast forward it to today. Mr. Warsh, we did hear from Kevin Warsh last week for the first time as Chairman of the Fed.
What were your takeaways?

**Bill Dudley** (4:15)
Well, I think the big takeaway is, number one, that it's going to be a different regime under Kevin Warsh.
So the regime change that he promised is in the process of happening. You can just tell it right off the bat with a very much shortened statement. I think in getting rid of Ford guidance, I think it's completely appropriate. But I'm pretty nervous about his views about not communicating at all about how the Fed is likely to react if the economic circumstances change. This reliant on the market's views to guide policy, I think, is a mistake. The Federal Reserve needs to set monetary policy, not financial markets. If you're relying on the markets, how do you make the decision? Markets basically don't price to what they think the Fed should do, they price to what the Fed, what they think the Fed will do. So if you're relying on the markets, you're sort of, you have this indeterminacy about what you should do.