Alan Greenspan

Alan Greenspan was Chair of the Federal Reserve from 1986 – 2006. A disciple of the libertarian-thinking Ayn Rand, he was an economist who believed in self-correcting markets.

In the 1990s, he presided over a long economic and financial-market boom and attained the status of Washington’s resident wizard. But the super-low interest rates Greenspan brought in the early 2000s and his long-standing disdain for regulation are now held up as leading causes of the mortgage crisis.

According to some critics, Greenspan’s policies of adjusting interest rates to historic lows contributed to a housing bubble in the United States. The Federal Reserve acknowledged the connection between lower interest rates, higher home values, and the increased liquidity the higher home values bring to the overall economy

He admitted in a Congressional hearing that he had “made a mistake in presuming that financial firms operating in their own self-interest, would do what was necessary to protect their shareholders and institutions”, calling this “a flaw in the model … that defines how the world works.”

He has also acknowledged that he was wrong in rejecting fears that the five-year housing boom was turning into an unsustainable speculative bubble that could harm the economy when it burst, maintaining that during that period house prices were unlikely to post a significant decline nationally because housing was a local market. He said the current financial crisis had “turned out to be much broader than anything that I could have imagined.”

After he left the Fed, in 2006, Greenspan joined Pimco, the world’s largest bond investor, as a special consultant. Pimco’s co-founder Bill Gross said Greenspan had helped make the firm “billions of dollars” in his role as a consultant. He has also advised Deutsche Bank and hedge fund billionaire John Paulson.

In 2002 he received an Honorary Knighthood from the British Isles for his “contribution to global economic stability”.

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