Alan Greenspan

Alan Greenspan (born 1926) is an American economist who served as Chair of the Board of Governors of the Federal Reserve System from August 1987 to January 2006, making him one of the longest-serving heads of the US central bank. He was appointed by President Ronald Reagan and reappointed by Presidents George H. W. Bush, Bill Clinton and George W. Bush. Before joining the Fed he ran an economic consulting firm and chaired the President's Council of Economic Advisers.

Greenspan's tenure coincided with long expansions, low inflation and the period economists call the Great Moderation. He was widely praised while in office, but after the 2008 financial crisis many economists and politicians criticised his low interest rates in the early 2000s and his opposition to tighter regulation of derivatives and mortgage lending.

The head of a central bank is like the person in charge of a city's water pressure. Too little money flowing through the economy and businesses struggle; too much and prices start rising fast. For almost two decades, Greenspan was the person turning that tap in the United States, mainly by moving the interest rate banks charge each other overnight.

For most of that time the economy grew and prices stayed calm, so people saw him as a master of the job. Later, many argued that he left the tap open too long and trusted markets too much, which helped inflate the housing and credit boom that burst in 2007 and 2008.

Greenspan was born in New York City in March 1926. He studied clarinet at the Juilliard School and played professionally in a dance band before turning to economics at New York University, where he earned bachelor's and master's degrees and, in 1977, a doctorate. In 1954 he co-founded the consulting firm Townsend-Greenspan & Co., which advised large companies on economic trends. In the 1950s and 1960s he was part of the circle around the novelist Ayn Rand and wrote essays defending laissez-faire capitalism and the gold standard. He chaired the Council of Economic Advisers under President Gerald Ford from 1974 to 1977 and, from 1981 to 1983, the commission whose recommendations shaped reforms to US Social Security.

Greenspan took office in August 1987. Two months later, on 19 October 1987, US stock prices fell by more than 20% in a single day. The next morning the Fed issued a brief statement affirming its readiness to provide liquidity to the financial system, which is widely credited with calming markets. Key episodes of his tenure included:

• Early 1990s. Rate cuts during the savings and loan crisis and the 1990–91 recession.
• 1994. A series of rate rises that pre-empted inflation but caused large bond market losses.
• Late 1990s. Steady policy during a technology boom, which Greenspan attributed partly to rising productivity, and rate cuts after the 1998 collapse of the hedge fund Long-Term Capital Management.
• 2001–2004. Cuts in the federal funds rate to 1% after the dot-com bust and the September 2001 attacks, followed by gradual rises from mid-2004.

Greenspan was known for deliberately complex language, once remarking that if he seemed unduly clear, he had probably been misunderstood. In a December 1996 speech he asked how policymakers would know when "irrational exuberance" had inflated asset prices, a phrase that became shorthand for market bubbles. He generally argued that central banks could not reliably identify an economic bubble in advance and should instead clean up after it bursts. Market participants came to believe the Fed would cut rates to support falling markets, an expectation nicknamed the "Greenspan put". He favoured light-touch regulation and opposed efforts in the late 1990s to regulate over-the-counter derivatives.

After the housing crash, critics argued that low rates in 2002–2004 and weak supervision of subprime mortgages had fuelled the boom. In testimony to a House committee in October 2008, Greenspan said he had found a "flaw" in his assumption that lenders' self-interest would protect shareholders, an admission widely quoted since. He defended his record on rates, arguing that long-term mortgage rates were driven by global savings rather than the Fed's short-term rate. His memoir, The Age of Turbulence, was published in 2007. He has also commented on gold and cryptocurrencies, expressing scepticism that Bitcoin has intrinsic value. Assessments of his legacy remain divided between credit for the long expansion of the 1990s and blame for the conditions that preceded the crisis.

• Board of Governors of the Federal Reserve System