The Myth of Alan Greenspan as the ‘Maestro’

The longtime Fed Chairman had many successes but he fed the credit mania that led to the 2008 financial panic

WSJ editorial. Excerpts:

"The bad turn came in the 2000s after 9/11 and the dot-com bust. Influenced by then Fed Governor Ben Bernanke, Greenspan became preoccupied with the risk of deflation. In June 2003 Greenspan cut the fed funds rate to 1% and kept it there for a year, though the second Bush tax cut had passed Congress in May and the economy had begun to surge.

Greenspan tightened money slowly after that, despite rising oil and other commodity prices. Thus was born the great credit mania of the mid-2000s. These columns warned consistently in that era that the Fed was too easy for too long, and Greenspan let us know in often contentious phone calls that he didn’t like our then-lonely warnings.

Only in 2005 did Greenspan finally say publicly that housing prices had become “frothy.” But by then the credit mania and housing bubble were already long building."

"Congress pressed Fannie Mae and Freddie Mac to guarantee subprime mortgages and “liar loans.” To his credit, Greenspan in the 2000s was an ally of the George W. Bush White House in pressing Congress to shore up the capital standards of Fannie and Freddie."

"Greenspan never admitted the failure of monetary policy or of the regulators at the time who had allowed Citigroup and other banks to create the off-balance-sheet vehicles that failed."