Home / Opinion / Alan Greenspan caused this crisis

Alan Greenspan caused this crisis

Back in November 2007, when Alan Greenspan was running around promoting his book, the Age of Turbulence, his kudos was high and standing was great.  It was just a year after leaving office and subprime had hit, but folks thought it was just a $300 billion hole … a mere drop in the ocean.

I heard him speak on the public stage back then, and he made many points all of which came back to : "it's not my fault".

Now the crisis is a lot bigger with trillions of dollars involved, and many blame Alan Greenspan for it.  For example:

  • 1987, Alan Greenspan assumed office and total outstanding US home mortgages was $1.82 trillion;
  • 1999, total outstanding mortgages in the US was $4.45 trillion;
  • 2004, US home mortgages rose to $7.56 trillion; and in
  • 2005, Greenspan's final full year as Fed chairman, home mortgage debt outstanding increased to $9.1 trillion.

In particular, Alan Greenspan was a fan of the free market system and loose self-regulation, as well as a staunch defender of the use of leverage and derivatives to fuel commerce.  He now recognises that there was a flaw in that approach, although some would say he could concede such a point when he has made millions out of the free market system personally. 

For example, after leaving office, three firms – Deutsche Bank, Hedge Fund Paulson & Co and bond investment company Pacific Investment Management (PIMCO) – hired Alan Greenspan as an adviser on economic issues and monetary policy.  Paulson & Co is known for its record $3.7 billion profit making out of the credit crisis, some of which must have flown the Greenspan way.

With Alan Greenspan's bubble burst, everyone now lays the blame at his feet.  This is clearly demonstrated by the media and online rants and raves, with the latest to prompt such outcry coming from two UK newspapers that ran a poll this week to find out who we all think is to blame for this crisis.  Alan Greenspan comes out #1 in both.

The Guardian gives him 31.9% of their public vote, George W. Bush gets 16.7% and Gordon Brown 14.1%.  Fourth place went to the American Public … doh!

In a similar poll in the Times, Greenspan comes first with 31.2% and Gordon Brown comes second with 20.8%, whilst George W. gets 16.7%.

Equally, in a USA Poll by Institutional Investor, those who should know, 53% blame Greenspan, 28% Geroge W. Bush and, interestingly, 16% Bill Clinton.

What such polls serve to achieve I have no idea, but it does show that Mr. Greenspan might be advised to avoid walking down the street on his own at night for a while.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

Check Also

2015: Time to Open Source Finance

Another key development of 2015 has been the open sourcing of bank services.  I’ve talked …

5 comments

  1. To combat the LAST recession, Greenspan cut the Fed rate so many times that he alone could be blamed for the subprime bubble.

  2. Hey Jeffry, exactly how popular is Mr. Greenspan in the USA right now?
    On a scale of 100, he probably scored about 98 from the audience I was with in 11/07 on the gravitas and intellectual heavyweight scale, and about 65 on the popularity scale.
    I’d probably guess both figures have come down a bit since then!
    Chris

  3. Hey Jeffry, exactly how popular is Mr. Greenspan in the USA right now?
    On a scale of 100, he probably scored about 98 from the audience I was with in 11/07 on the gravitas and intellectual heavyweight scale, and about 65 on the popularity scale.
    I’d probably guess both figures have come down a bit since then!
    Chris

  4. In September 2008, Alan Greenspan pronounced this the “worst economy I’ve ever seen”. However, he took no responsibility for his part in helping to create the mess. Alan Greenspan is not the Oracle of the Economy. If he were then he might have seen what was coming and abandoned his advocacy for deregulation. Yet, many in the markets keep paying attention to his pronouncements. How many times does the Oracle get to be wrong before we stop listening?

  5. It is hard to blame one person for the crisis, however Mr. Greenspan was the proverbial juggler who dropped a few balls during his reign. I personally think the majority of the blame lies on the Mark to Market rules applied to instruments that are not meant to be accounted by that method. If you remove this requirement suddenly we can assign a value and price these instruments properly. Hmmm…

Click on a tab to select how you'd like to leave your comment

Leave a Reply

Your email address will not be published. Required fields are marked *