Re: Crash of '87
Jude Wanniski
November 20, 2000


From: "Angell, Wayne (Exchange)" <wangell@* * * * *.com>
To: "'Jude Wanniski'" <>
RE: Crash of '87
Date: Mon, 20 Nov 2000 11:04:58 -0500

Yes.  The Louvre Accord was worked out by James Baker and Paul Volcker, beginning around February 1987.  Paul began mentioning it to Manley and myself and to other some other Board members In February.  My take, at the time, was that Baker was effectively saying to Volcker, if I get you the Louvre Accord that makes a strong dollar the position of the G-5 and the Treasury, then you, Paul, will hold off any interest rate increases beyond the 25 basis points that Paul planned to do between FOMC meetings.  As you know Paul was always concerned about a "free-falling dollar."  At that time Paul wanted to be asked to serve a third term as Chairman, which would have taken him to August of 1991.  I do not believe that Baker ever intended to
give Volcker that third term.  He did not trust that Paul would have been congenial in insuring that the economy was strong in 1988 so that Vice President Bush not go the same way as Vice President Nixon in 1960.  (There is no doubt in my mind, and in Manley's and Baker's that Nixon would not have lost if the Martin Fed had not tripped us into a recession which should have never occurred.)

Sometime, in May, Volcker decided that there was no gain for him to continue to seek the Chairmanship.  He told Manley and me that any day we wanted to seek a lower level of reserve additions consistent with an increase in the funds target rate to let him know--he was ready.  Ironically, every week out target indicators, including the price of gold, were not proclaiming the need to slow down the growth of reserve liquidity. 

My assumption is that Alan Greenspan was thought to be more reliable in regard to supplying sufficient reserves to keep the dollar in check against its Summertime strength so as to guide the economy along a growth path through 1988.  But, in answer to your question, I never heard Greenspan argue for a weaker dollar.  My presumption is that the Greenspan of the Fortune October 26 article seemed somewhat satisfied with the weaker equity market from the August high to the first of October, coinciding with the interview, and thereby had such a bullish outlook for the performance of the U. S. economy.  The stock market episode of October 19, must have really shaken his confidence that a recession in 1988 was a very low risk. 

DeLara was an out and out devaluationist.  I was meeting regularly with DeLara's boss during that period as the strong dollar voice.

-----Original Message-----
From: Jude Wanniski []
Sent: Saturday, November 18, 2000 10:36 AM
To: Angell, Wayne (Exchange)
Subject: RE: Crash of '87

Do you remember the Louvre Accord, which was agreed upon prior to Greenspan's arrival? I don't know if you had a chance to get to know him much in those 70 days between his swearing in and the Crash. I do remember you worrying about Treasury being interested in a weaker dollar in that period... Darman, who was not a devaluationist, had left the Treasury by then and DeLara was vocal for a cheaper dollar. Did Greenspan have anything to say in those pre-Crash days about the dollar, other than what he told Fortune? 

If you have the Friday WSJ, there is a review of Woodward's book by Susan Lee in the weekend edition.

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