Alan Greenspan, ex-Federal Reserve chief, dies at 100

Alan Greenspan, the Federal Reserve chairman proclaimed a wizard for guiding a then-record US economic expansion, only to see his luster dimmed by the financial crisis that erupted less than two years after he stepped down, has died. He was 100.

He died on Monday at his home, NBC News reported, citing his wife, Andrea Mitchell, its chief Washington correspondent and chief foreign affairs correspondent. The cause was complications of Parkinson’s disease.

Greenspan’s 18 years as Fed chief, from 1987 until his retirement at the start of 2006, were marked by a stock market boom and low unemployment. More so than the four presidents he served under or the seven Treasury secretaries he worked alongside, Greenspan was seen as the maestro who kept the economy humming.

“Alan Greenspan deserves to be remembered as one of the great central bankers of the second half of the 20th century, in a global context, not just at the Fed,” said Roger Ferguson, who served as Fed vice chairman from 1999 to 2006. He said Greenspan “was among the first to recognize the impact of technology on increasing productivity in the US, allowing the economy to grow faster than we had thought without inflation.”

The bespectacled Fed chairman became an icon of global finance through televised speeches and congressional testimony that often moved markets — once traders and reporters dug through his often cryptic language and zeroed in on a few choice words.

In a 1996 speech, Greenspan posed a rhetorical question: “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” Investors fixed on the phrase “irrational exuberance” and sent stocks briefly lower before they shot higher still. The phrase became part of the national lexicon a few years later when pricey internet shares plunged.

Investors grew confident that Greenspan would deploy the tools at his disposal, including interest rates, to buoy the stock market during major declines. That idea — shorthanded as the “Greenspan put,” after the investing maneuver used to limit potential losses — was blamed for creating a moral hazard by making risky market behavior appear safer than it should be.

Greenspan’s tenure was the second-longest for a Fed chief, behind that of William McChesney Martin Jr. It coincided with the steadiest period of economic growth since the central bank’s creation in 1913, a 10-year run between a recession that ended in March 1991 and another that began in March 2001. (The expansion of 2009-2020 would eclipse that mark.) The Standard & Poor’s 500 Index almost quadrupled during that stretch, while the US economy grew at an average annual pace of 3.5%. The jobless rate averaged 5.5% and touched 3.8% in April 2000, which at the time was the lowest level since 1969.

Some homebuyers were approved for subprime mortgages they couldn’t afford. Others borrowed heavily against their home equity. Investment bankers packaged mortgage-backed loans into securities, and companies sold protection from defaults on that debt. The machine hummed along until its fuel — ever-rising home prices — finally ran out.

Transcripts from Fed policy meetings in 2005 showed that central bank staff and officials had identified a housing bubble. Greenspan judged that “whatever froth there is in the housing market is becoming contained at this stage, and it’s getting contained largely because mortgage rates have moved up and are beginning to have an impact.”

In mid-2007, lending among banks seized up, setting off events that culminated in the September 2008 bankruptcy of Lehman Brothers Holdings Inc. The crisis thrust the Fed and Greenspan’s successor as chairman, Ben Bernanke, into uncharted territory.

Long celebrated for his stewardship of the economy, Greenspan found himself in the unaccustomed position of fending off critics who said that his hands-off approach to financial markets and bubbles — specifically the one in housing that was inflating as he left office — had laid the groundwork for the worst economic meltdown since the Great Depression. By promoting a boom in productivity as a sign of a so-called new economy, Greenspan “aided and abetted the biggest stock-market bubble in the history of this country,” Paul Kasriel, a former Fed official then with Northern Trust Co. in Chicago, put it in 2010.