Who is 'Alan Greenspan'

Alan Greenspan is the former Chairman of the Board of Governors of the Federal Reserve System (the Fed) from 1987 until 2006. In that role, he also served as the chairman of the Federal Open Market Committee (FOMC), which as the Fed’s principal monetary policymaking committee makes decisions on interest rates and managing the U.S. money supply.

BREAKING DOWN 'Alan Greenspan'

Alan Greenspan became the 13th Chairman of the Federal Reserve replacing Paul Volcker. President Ronald Reagan was the first to appoint Greenspan to the office, but three other presidents, George H.W. Bush, Bill Clinton, and George W. Bush, named him to four additional terms. His tenure as Chairman lasted for more than 18 years before he retired in 2006 to be replaced by Ben Bernanke. Alan Greenspan now works as a private adviser and consultant. 

Alan Greenspan was known as being adept at gaining consensus among Fed board members on policy issues and for serving during one of the most severe economic crises of the late 20th century, the aftermath of the stock market crash of 1987. After that crash, he advocated for sharply slashing interest rates to prevent the economy from sinking into a deep depression.

Considered an inflation hawk, Greenspan received criticism for focusing more on controlling prices than on achieving full employment. Greenspan’s “hawkish” stance generally meant a preference for sacrificing economic growth in exchange for preventing inflation. Finance and investment professionals who preferred more economic growth would often find themselves at odds with Greenspan’s keen focus on inflation.

Greenspan was flexible, however, willing to risk inflation under conditions that could create a severe depression. In 2000, he advocated for reducing interest rates after the dot-com bubble burst. He did so again in 2001 after the 9-11 World Trade Center attack. Greenspan led the FOMC to immediately reduce the Fed funds rate from 3.5% to 3%, and in the following months, he worked towards lowering that rate to as low as 1-percent. However, the economy and stock markets remained sluggish.

Alan Greenspan’s Controversial Legacy

Although he presided over one of the most prosperous periods in American history, Greenspan is remembered by some as making some significant errors. One was in the 1990s when the Federal Reserve took action to slow economic growth in response to fears of inflation. This action resulted in an unforeseen economic downturn. Although Greenspan eventually reversed those actions, in a 1998 speech he conceded that the new economy might not be as susceptible to inflation as he had first thought.

And although in the early 2000s, Greenspan presided over cutting interest rates to levels not seen in many decades, some criticized those rate cuts as contributing to a housing bubble in the U.S., which resulted in the subprime mortgage financial crisis that began in 2007.

In fact, in a 2004 speech, Greenspan suggested more homeowners should consider taking out adjustable-rate mortgages (ARMs) where the interest rate adjusts itself to prevailing market interest rates. Under Greenspan’s tenure, interest rates raised. This increase reset many of those mortgages to much higher payments, creating even more distress for many homeowners and exacerbating the impact of that crisis.

RELATED TERMS
  1. Greenspan Put

    Greenspan put was a trading strategy popular during the 1990s ...
  2. Infectious Greed

    A phrase used in his July 2002 testimony before the Committee ...
  3. Pale Recession

    A pale recession is a phrase used in May 2008 by Alan Greenspan ...
  4. Hawk

    A hawk is a policymaker or advisor who focuses on interest rates ...
  5. Keynesian Put

    A Keynesian Put is the expectation that markets and the economy ...
  6. Board of Governors

    The board of governors is a team responsible for overseeing the ...
Related Articles
  1. Investing

    Bond Bubble Is Beginning to Unwind: Greenspan

    Former Fed chief Alan Greenspan said the bond market is in a bubble and that prices are too high.
  2. Insights

    Janet Yellen Vs. Alan Greenspan: Who Is The Better Fed Head?

    We examine how these two histories Fed chairpeople differ and the impact of their views and actions on the world economy.
  3. Insights

    Greenspan Fires a Salvo at Dodd-Frank Reforms

    Former Federal Reserve Chairman Alan Greenspan wants to repeal the Dodd-Frank financial reform bill, saying that it has not worked at all.
  4. Insights

    'Irrational Exuberance' 20 Years On

    The S&P is up 196% since Greenspan uttered these now-famous words.
  5. Trading

    How The Federal Reserve Was Formed

    Find out how this institution has stabilized the U.S. economy during economic downturn.
  6. Insights

    Translating "Fed Speak" Into Plain English

    Confused by the Fed's lingo? Find out what it can tell you and learn how to decipher it.
  7. Insights

    Does the Fed Influence Who’s in the White House?

    Whether it's intentional or not, the Federal Reserve plays a major role in politics.
  8. Investing

    When The Federal Reserve Intervenes (And Why)

    The Federal Reserve doesn't interfere with the economy every time it flounders. Find out more here.
  9. Insights

    The Federal Reserve

    As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  10. Personal Finance

    Yellen: No U.S. Bubble

    Last night at the International House in New York, an educational non profit group, Fed Chairperson Janet Yellen joined former Fed chairs Ben Bernanke and Alan Greenspan as well as Paul Volcker ...
RELATED FAQS
  1. What is the relationship between inflation and interest rates?

    As interest rates are lowered, more people are able to borrow more money, causing the economy to grow and inflation to increase. ... Read Answer >>
  2. How are interest rates related to open market operations?

    Learn about open market operations and how this monetary policy tool impacts interest rates. Find out how the Fed combats ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center