Alan Greenspan: What I got wrong

(CBS News) Contrary to what many financial observers thought at the time, not every pronouncement by former Fed Chairman Alan Greenspan was on the money . . . and no one knows that better than Greenspan himself. He talks about that, and much more besides, with Anthony Mason:

The nation's capital narrowly averted a financial crisis this past week . . . and the man who steered the world's greatest economy for nearly two decades was worried.

"Well, it's the worst I've ever seen it," Alan Greenspan said of the discord in Washington, D.C. "And I've been in and out of Washington, oh, since the 1950s."

As Chairman of the Federal Reserve for 18 years, Greenspan worked with Presidents George W. Bush, Bill Clinton, George Bush and Ronald Reagan. Before that, he headed President Gerald Ford's Council of Economic Advisors.

And Greenspan remembers the battles the Republican president had with Democratic House Speaker Tip O'Neill:

"They were at each other's throats all day long, from 9:00 to 5:00," Greenspan said. "At 6:00, Tip would go over to the West Wing of the White House and have a bourbon with his old buddy, Gerry.

"That doesn't exist anymore."

"So in other words, you're not going to find a Democrat at a Republican cocktail party?" Mason asked.

"You can. But you have to look very hard."

When asked his opinion on shutting down the federal government as a political strategy, Greenspan said, "We're a democratic society. Shutting down the government should not be on the agenda."

As for flirting with default on the nation's debt, he said, "The whole system is based on trust. You break trust down, and the system implodes."

"So we're playing with fire?" Mason said.

"Indeed, we are."

When he left the Federal Reserve in 2006, America was in its greatest period of economic growth in our history. Greenspan was the economy's rock star, revered around the world. Even Cuba's Communist leader, photographed with Greenspan's memoir, was a fan.

"This is so inconceivable," Greenspan said of the photo of Fidel Castro holding a copy of Greenspan's "The Age of Turbulence."

He' s also been knighted, but is Sir Alan only in the United Kingdom, "and nowhere else."

But then came 2008. The housing bubble burst, Lehman Brothers collapsed, the stock market plunged.

"People were blaming you for what happened," said Mason.

"I didn't like it," Greenspan said. "Look, I'm a human being. I mean, when I get criticism like I got, obviously I don't like it. But you know, I got a lot of praise which I didn't deserve as well."

But one article in particular struck him: "It said basically, 'Do we economists know anything?' And it is a very legitimate question. Because if you don't know enough to capture the most extraordinary event, economic event, in all of our lifetimes, what in the world do we really know?

"It's like a mystery story to me. You know, how in the world did I miss it? And I said, 'I'm gonna find out why.'"

He spent two years going back through the data and charts, writing his new book, "The Map and the Territory."

"It became very apparent to me that we misunderstand how systematic fear is," he said.

The fear that led to panic selling and the euphoria that inflated the housing bubble were not factored into the Federal Reserve's computer models.

Greenspan himself believed irrational behavior could not be projected or analyzed.

Now, he says, "I was wrong."

"You think you can put human behavior in a model or in an equation?" Mason asked.

"In fact, you can measure it," Greenspan replied. "Because if you look at the business cycle, for example, euphoria drives it about, and then fear collapses it. And you can take one example after the other, and they look alike."

Long before he was maestro of the economy. Greenspan studied music at Juilliard. He toured for a year with the Henry Jerome Swing Band, playing saxophone and clarinet.

Greenspan pulled out his original clarinet, which dates from the 1940s.

"Boy," he said, "this brings back memories. I'd blow it, but the problem is, I remember how it used to sound. And I just try to remember that."

Greenspan saw he was never going to be a great musician.

"I mean, I had played next to Stan Getz -- I was 16, he was 15 -- and I played for a year side-by-side with him in a band. And he was basically pretty much determined I was gonna become an economist!"

But it did lead him to his wife, Andrea Mitchell.

"In fact, what originally attracted me to her was she liked the same music I did."

Greenspan and the NBC News correspondent have been married for 16 years.

She told Mason that Greenspan is an obsessive writer.

"Compulsive. He is morning, noon and night, to the point where we'd be driving to the tennis courts and he'd be looking at some manuscript and ask me to drive so that he could edit copy during the red lights."

"If you get an epiphany, you don't wanna lose it," he explained.

At the Federal Reserve, there's about to be another changing of the guard. Janet Yellen, nominated to be the next head, served under Greenspan in the '90s.

He said, "She's a very intelligent woman. I'm glad to see her as the first woman Chair of the fed. It's long overdue."

He runs a consulting business now, still keeping his eye on the economy. At 87, there is nothing retiring about Alan Greenspan.

"Is that an option?" Mason asked.

"Is what an option?"

"Retirement."

"I don't know what it means," Greenspan responded. "I mean, what do we do, stop thinking?"

For more info:

• "The Map and the Territory: Risk, Human Nature, and the Future of Forecasting" by Alan Greenspan (Penguin); Also available in eBook and Unabridged Audio CD formats
• "The Age of Turbulence: Adventures in a New World" by Alan Greenspan (Penguin); Also available in trade paperback and eBook formats