Alan Greenspan

Immediately after being appointed Fed chairman as the successor to Paul Volcker, he drew attention by quickly recovering from the 1987 stock market crash, and while standing at the center of the 1990s economic boom, he earned the honorable nickname "Maestro."

However, as he was singled out as a key figure in the Dot-com Bubble fiasco, he lost the achievements and reputation he had built up. The subprime housing-loan derivatives he authorized with the aim of revitalizing the housing market and helping ordinary Americans buy homes became one of the pillars supporting the U.S. economy, but...

Becoming the biggest cause of the 2008 The Subprime Mortgage Crisis, he was fiercely criticized as the man who wrecked the global financial economy. Eventually, in October 2008, he appeared at a hearing chaired by the U.S. House Committee on Oversight and Government Reform, came under intense fire from lawmakers, and left behind the famous words "I made a mistake," admitting that the policies he had led during his 19 years as Fed chairman were wrong.

To the first question — "Was your policy wrong?" — he began by saying, "It is true that I am partly at fault." The reason the fault was only "partial" was that the market could be swayed by a single decision of his; in such a situation, derivatives and other complex entanglements were ultimately a game of hot potato, and there is no choice that is both low in risk and good in every way — that is the point of the first exchange.

To the second question — "So what was the mistake?" — the mistake Greenspan admitted was "believing that self-interested institutions (companies), especially banks, would be competent at protecting their own shareholders and assets," and that a structure critical to the way he believed the world worked was flawed.

He closed by saying that, in his view, those decisions were not based on personal favoritism but were made in keeping with the oath he had taken upon being appointed chairman, and that they were not driven by self-interest or personal emotion.

Irrational Exuberance

On December 5, 1996, as the Dow broke through 6,400, Fed Chairman Alan Greenspan warned at the American Enterprise Institute's annual dinner in Washington. He asked, "Who knows whether asset prices, having risen excessively due to irrational exuberance (irrational exeburance), will fall as they did in Japan over the past decade? If so, how should such a judgment be reflected in monetary policy?"

His words sent shockwaves. In particular, "irrational exuberance" became the most famous phrase Greenspan uttered during his tenure as Fed chairman. As his words flashed across computer monitors, Asian and European markets plunged, and the next morning the New York stock market crashed as soon as it opened. However, American investors quickly regained their optimism, so Wall Street closed only slightly lower.

• -b stocks for the long run

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Topics: Fed
Category: Wiki/Person