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Alan Greenspan
Federal Reserve Chairman Who Refused to Regulate Derivatives; Blamed for 2008 Financial Crisis
Federal Reserve Chairman (1987-2006); Architect of Deregulation; Ayn Rand Disciple
Overview
Alan Greenspan served as Chairman of the Federal Reserve from 1987 to 2006; the second-longest tenure in the institution's history; and is widely considered one of the central figures responsible for the conditions that led to the 2008 global financial crisis. A devoted disciple of Ayn Rand who attended her inner circle and contributed an essay defending the gold standard to her book "Capitalism: The Unknown Ideal"; Greenspan brought a fundamentalist free-market ideology to the most powerful economic position in the world. He systematically blocked regulation of over-the-counter derivatives; personally intervening in 1998 to prevent the Commodity Futures Trading Commission (CFTC) under Brooksley Born from regulating credit default swaps and other derivatives that would later detonate the global economy. When Born warned that unregulated derivatives posed systemic risk; Greenspan; along with Robert Rubin and Larry Summers; successfully pressured Congress to strip the CFTC of regulatory authority through the Commodity Futures Modernization Act of 2000. He kept interest rates at historic lows from 2001-2004; fueling the housing bubble; and championed adjustable-rate mortgages even as predatory lending exploded. He coined the term "irrational exuberance" in 1996 to describe the dot-com bubble but took no action to restrain it. The unregulated derivatives market he protected grew to over $600 trillion in notional value by 2008 and was the primary accelerant of the financial crisis that destroyed $10 trillion in American household wealth; caused 10 million foreclosures; and triggered the worst global recession since the Great Depression. In October 2008; testifying before Congress; Greenspan admitted he had "found a flaw" in his free-market ideology; stating: "I made a mistake in presuming that the self-interests of organizations; specifically banks and others; were such that they were best capable of protecting their own shareholders." Despite this admission; no one was held accountable.
Key Affiliations
Controversies & Concerns
Personally blocked Brooksley Born and the CFTC from regulating over-the-counter derivatives in 1998; the unregulated market grew to $600+ trillion and was the primary accelerant of the 2008 crisis
Supported the Commodity Futures Modernization Act of 2000 which stripped the CFTC of regulatory authority over derivatives; effectively deregulating the instruments that destroyed the global economy
Kept federal funds rate at 1% from June 2003 to June 2004; fueling the housing bubble through artificially cheap credit
Publicly championed adjustable-rate mortgages in February 2004; encouraging borrowers to take on risky debt just as the housing bubble was inflating
Coined "irrational exuberance" in 1996 to describe dot-com bubble but took no regulatory action to prevent its inflation or collapse
Admitted before Congress in October 2008 that his free-market ideology had a "flaw" and that he had been wrong about self-regulation of financial markets
Ayn Rand disciple who attended her inner circle for decades; brought fundamentalist laissez-faire ideology to the Federal Reserve
His deregulatory policies contributed directly to the 2008 crisis that destroyed $10 trillion in household wealth; caused 10 million foreclosures; and triggered global recession
Opposed regulation of predatory subprime lending despite warnings from consumer advocates and the FBI about epidemic mortgage fraud
Related Investigations (1)
Known Associates & Connections
Brooksley Born
CFTC Chair whose warnings about derivatives he suppressed
Sources & Documentation
3 documented sources from official records, investigations, and reports
Personal Information
- Born
- March 6; 1926
- Birthplace
- New York City; New York; USA
- Also Known As
- The Maestro, The Oracle
Education
- •New York University; BS Economics (summa cum laude; 1948)
- •New York University; MA Economics (1950)
- •New York University; PhD Economics (1977)
Key Timeline
March 6; 1926
Born in New York City
1950s-1960s
Member of Ayn Rand's inner circle; "The Collective"; contributes essay on gold standard to her book
August 11; 1987
Appointed Federal Reserve Chairman by President Reagan
December 5; 1996
Coins "irrational exuberance" in speech warning about dot-com stock valuations; takes no action
1998
Blocks Brooksley Born's CFTC from regulating over-the-counter derivatives; pressures Congress to strip CFTC authority
December 2000
Commodity Futures Modernization Act signed; deregulating derivatives market Greenspan championed
June 2003
Cuts federal funds rate to 1%; lowest in 45 years; fueling housing bubble
February 2004
Publicly recommends adjustable-rate mortgages to American homeowners
January 31; 2006
Retires as Federal Reserve Chairman after 18.5 years
October 23; 2008
Testifies before House Oversight Committee; admits "I found a flaw" in his free-market ideology