How Alan Greenspan built and unleashed the massive, modern Federal Reserve

When Dr. Alan Greenspan, who passed away at 100, took the Fed chairmanship in July 1987, the Fed already held massive power under Paul Volcker. That was memorialized in the "Secrets of the Temple" released in 1987. 

Importantly, Greenspan changed the Fed's approach to monetary policy. He moved the Fed from Volcker's monetarism and control of the M2 money supply - a system that some blame for the depth of the 1982 recession - to data dependence and Fed funds targeting.

Under Greenspan's guidance, the Fed became a fast, dependable provider of emergency liquidity, dubbed the "Greenspan put". His first emergency came soon after his 1987 Senate confirmation when the Dow fell a single-day record 23% on October 19, 1987, Black Monday. The Fed acted immediately to expand bank reserves, which at that time were a limiting factor in the banking system's ability to make loans and support broker-dealers.  With the added liquidity, the Fed funds rate fell on October 20 and for several days after.  By the 1998 and 2000 market crashes, multiple interest rate cuts were used proactively to support financial markets during distress. The era was captured in the 2000 book Maestro: Greenspan's Fed and the American Boom.

David Malpass is a former Treasury undersecretary.