Alan Greenspan dominated the American economy for almost two decades. During his 18 years as Chairman of the Federal Reserve from 1987 to early 2006, he weathered the Black Monday stock crash of 1987, the 1990-91 recession, and the bursting of the dot-com bubble in 2001.
Strong economic performance during his term of office lent Greenspan an aura of infallibility and the markets hung on his words. When on February 26, 2007 he forecast a 2008 recession, the Dow Jones Industrial Average lost 3.3 percent?of its value.
But as the US housing market began to show the unmistakable characteristics of a speculative bubble, Greenspan attracted criticism for having taken no counter measures. "Greenspan's Fingerprints All over Enduring Mess," was the title of one article in the American Banker.
Greenspan defended himself vigorously "Free competitive markets are by far the unrivaled way to organize economies. We have tried regulation ranging from heavy to central planning. None meaningfully worked. Do we wish to retest the evidence?"
But critics insisted that Greenspan's vehement opposition to any regulation of financial derivatives contributed to the financial crisis. It was the collapse of a type of derivative, the Mortgage Backed Security, that triggered the economic crisis of 2008.
Testifying to a Congressional Committee on October 23, Greenspan said of his free market ideology: "I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact. Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity - myself especially - are in a state of shocked disbelief."
Democratic Congressman Henry Waxman pressed him to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said. "Absolutely, precisely," Greenspan replied.
(China.org.cn by John Sexton, November 13, 2008)
