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.

He was the 13th Chairman of the Federal Reserve, first appointed by President Ronald Reagan to replace Paul Volcker. Greenspan was reappointed to four additional terms — by Presidents George H.W. Bush, Bill Clinton, and George W. Bush — serving as Chairman for more than 18 years before he retired in 2006 and replaced by Ben Bernanke. He now works as a private adviser and consultant.

BREAKING DOWN 'Alan Greenspan'

Alan Greenspan was known as 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.

He was widely recognized as an inflation hawk, often criticized 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 so-called “dot-com bubble” burst. He did so again in 2001 after the World Trade Center was attacked, when he led the FOMC to immediately reduce the Fed funds rate from 3.5 percent to 3 percent — and in the months that followed reducing that rate to as low as 1 percent as 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 resulted in an unforeseen economic downturn. Although Greenspan eventually reversed those actions, in a 1998 speech he conceded that the “new economy” may 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 that more homeowners should consider taking out adjustable-rate mortgages (ARMs) where the interest rate adjusts itself to prevailing market interest rates. Yet under Greenspan’s tenure, interest rates were later raised, which reset many of those mortgages to much higher payments, creating even more distress for many homeowners and exacerbating the impact of that crisis."

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