Alan Greenspan
Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He worked as a private adviser and provided consulting for firms through his company, Greenspan Associates LLC.
Alan Greenspan
- Ronald Reagan
- George H. W. Bush
- Bill Clinton
- George W. Bush
Paul Volcker
Ben Bernanke
March 6, 1926
New York City, U.S.
First nominated to the Federal Reserve by President Ronald Reagan in August 1987, he was reappointed at successive four-year intervals until retiring on January 31, 2006, after the second-longest tenure in the position, behind only William McChesney Martin.[1] President George W. Bush appointed Ben Bernanke as his successor.
Greenspan came to the Federal Reserve Board from a consulting career. Although he was subdued in his public appearances, favorable media coverage raised his profile to a point that several observers likened him to a "rock star".[2][3][4] Democratic leaders of Congress criticized him for politicizing his office because of his support for Social Security privatization[5][6] and tax cuts.[7]
Many have argued that the "easy-money" policies of the Fed during Greenspan's tenure, including the practice known as the "Greenspan put", were a leading cause of the dot-com bubble and subprime mortgage crisis (the latter occurring within a year of his leaving the Fed), which, said The Wall Street Journal, "tarnished his reputation".[8][9] Yale economist Robert Shiller argues that "once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed".[10] Greenspan argues that the housing bubble was not a result of low-interest short-term rates but rather a worldwide phenomenon caused by the progressive decline in long-term interest rates – a direct consequence of the relationship between high savings rates in the developing world and its inverse in the developed world.
Early life and education[edit]
Greenspan was born in the Washington Heights area of New York City. His father, Herbert Greenspan, was of Romanian Jewish descent, and his mother, Rose Goldsmith, was of Hungarian Jewish descent.[11] After his parents divorced, Greenspan grew up with his mother in the household of his maternal grandparents who were born in Russia.[12] His father worked as a stockbroker and consultant in New York City.[13]
Greenspan attended George Washington High School from 1940 until he graduated in June 1943, where one of his classmates was John Kemeny.[14] He played clarinet and saxophone along with Stan Getz. He further studied clarinet at the Juilliard School from 1943 to 1944.[15] Among his bandmates in the Woody Herman band was Leonard Garment, Richard Nixon's special counsel. In 1945, Greenspan attended New York University's Stern School of Business, where he earned a B.A. degree in economics summa cum laude in 1948[16] and an M.A. degree in economics in 1950.[17] At Columbia University, he pursued advanced economic studies under Arthur Burns but withdrew because of his increasing work demand at Townsend-Greenspan & Company.[18]
In 1977, Greenspan obtained a Ph.D. in economics from New York University. His dissertation is not available from the university[19] since it was removed at Greenspan's request in 1987, when he became chairman of the Federal Reserve Board. In April 2008, however, Barron's obtained a copy and notes that it includes "a discussion of soaring housing prices and their effect on consumer spending; it even anticipates a bursting housing bubble".[20]
Reception[edit]
Housing bubble[edit]
In the wake of the subprime mortgage and credit crisis in 2007, Greenspan stated that there was a bubble in the U.S. housing market, warning in 2007 of "large double digit declines" in home values "larger than most people expect".[76] Greenspan also noted, however, "I really didn't get it until very late in 2005 and 2006."[77]
Greenspan stated that the housing bubble was "fundamentally engendered by the decline in real long-term interest rates",[78] though he also claims that long-term interest rates are beyond the control of central banks because "the market value of global long-term securities is approaching $100 trillion" and thus these and other asset markets are large enough that they "now swamp the resources of central banks".[79]
After the September 11, 2001 attacks, the Federal Open Market Committee voted to reduce the federal funds rate from 3.5% to 3.0%.[80] Then, after the accounting scandals of 2002, the Fed dropped the federal funds rate from then current 1.25% to 1.00%.[81] Greenspan stated that this drop in rates would have the effect of leading to a surge in home sales and refinancing, adding that "Besides sustaining the demand for new construction, mortgage markets have also been a powerful stabilizing force over the past two years of economic distress by facilitating the extraction of some of the equity that homeowners have built up over the years".[81]
According to some, however, Greenspan's policies of adjusting interest rates to historic lows contributed to a housing bubble in the United States.[82] 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: "Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission."[83]
In a February 23, 2004, speech,[84] Greenspan suggested that more homeowners should consider taking out adjustable-rate mortgages (ARMs) where the interest rate adjusts itself to the current interest in the market.[85] The Fed's own funds rate was at a then all-time-low of 1%. A few months after his recommendation, Greenspan began raising interest rates, in a series of rate hikes that would bring the funds rate to 5.25% about two years later.[86] A triggering factor in the 2007 subprime mortgage financial crisis is believed to be the many subprime ARMs that reset at much higher interest rates than what the borrower paid during the first few years of the mortgage.
In 2008, Greenspan expressed great frustration that the February 23 speech was used to criticize him on ARMs and the subprime mortgage crisis, and stated that he had made countervailing comments eight days after it that praised traditional fixed-rate mortgages.[87] In that speech, Greenspan had suggested that lenders should offer to home purchasers a greater variety of "mortgage product alternatives" other than traditional fixed-rate mortgages.[84] Greenspan also praised the rise of the subprime mortgage industry and its tools for assessing credit-worthiness:
Presidential Medal of Freedom The highest civilian award in the United States, by President George W. Bush in November 2005.[126]
