The man who was once called the greatest central banker in history has finally stopped spinning the economy. Alan Greenspan, chairman of the Federal Reserve from 1987 to 2006, died Monday at 100. For nearly two decades, he was the closest thing America had to an economic oracle.
Greenspan's legacy is a paradox: he helped create the longest peacetime expansion in U.S. history, then lit the fuse for the 2008 financial crisis. He was a libertarian who learned to love government intervention, a numbers guy who spoke in such impenetrable prose that markets hung on his every ambiguous word.
He was also, by most accounts, a genius. And genius, as we've learned, can be dangerous.
The Aura of Infallibility
Greenspan took the Fed's helm in August 1987, just two months before Black Monday. The Dow plunged 22.6% in a single day. Greenspan didn't flinch. He issued a terse statement: the Fed was ready to provide liquidity. Markets calmed. The crisis passed. From then on, Greenspan could do no wrong.
He presided over the 1990s boom, when inflation fell, unemployment dropped, and productivity soared. He became a folk hero. Magazines put him on covers. Senators treated him like a deity. When he testified, his elliptical answers were parsed like scripture. "I know you think you understand what you thought I said," he once told a senator. "But I'm not sure you realize that what you heard is not what I meant."
It was maddening. It was also brilliant. Greenspan understood that markets hate uncertainty but fear certainty even more. So he gave them nothing but a steady hand.
The Low-Rate Heresy
Then came the early 2000s. The dot-com bubble burst. 9/11 rattled confidence. Greenspan slashed interest rates to 1% and kept them there. Cheap money flooded the system. It was supposed to prevent a recession. Instead, it fueled a housing bubble.
Greenspan later admitted he was wrong. "I made a mistake in presuming that the self-interest of organizations was such that they were best capable of protecting their own shareholders," he told Congress in 2008. That's economist-speak for: I trusted the banks, and they screwed us all.
He also championed deregulation, famously arguing that financial derivatives made the system safer. When the housing market collapsed in 2007-2008, those derivatives turned into weapons of mass destruction. Lehman Brothers fell. AIG needed a bailout. The global economy nearly went under.
"I made a mistake in presuming that the self-interest of organizations was such that they were best capable of protecting their own shareholders." — Alan Greenspan, 2008
By then, Greenspan was out of power. He had retired in 2006, handing the reins to Ben Bernanke just as the house of cards began to wobble. But his fingerprints were all over the disaster.
The Human Side of the Oracle
For all his public gravitas, Greenspan was a man of contradictions. A devotee of Ayn Rand, he preached free markets but spent his career manipulating interest rates. He married NBC journalist Andrea Mitchell in 1997, and the two became a Washington power couple. Friends described him as witty and warm. His testimony — dry, hesitant, maddeningly vague — showed none of it.
He loved data. He once said that if you gave him enough numbers, he could predict anything. But he also had a mystical faith in the market's wisdom. "The market," he told a journalist, "is a very efficient mechanism for allocating capital. I've always believed that." That faith, ultimately, was his blind spot.
In retirement, Greenspan wrote books, gave speeches, and watched his reputation erode. He was blamed for the crisis, praised for the boom, and analyzed to death by economists. Through it all, he remained unflappable. When asked about his legacy, he said: "I think I did a pretty good job."
The Final Verdict
History will be kinder to Greenspan than the pundits of 2009. The crisis wasn't his fault alone. It took a village of idiots: lenders who gave loans to people with no income, regulators who looked the other way, politicians who demanded homeownership for everyone, and a public that believed prices only go up.
But Greenspan was the high priest of that religion. He gave it legitimacy. He waved the magic wand of low rates and declared the business cycle vanquished. He was wrong.
Still, a century is a long time to be right about most things. Greenspan's America — the boom years, the low inflation, the global dominance — was real. It wasn't an illusion. The crash that followed was real too. Both belong to him.
Alan Greenspan is dead. The arguments about what he built — and what he broke — aren't going anywhere.
