Alan Greenspan, head of the US Federal Reserve who was widely praised for keeping America prosperous

Alan Greenspan, who has died aged 100, was the chairman of the US Federal Reserve who was credited during his tenure with extraordinary powers to calm or stimulate markets at will and to steer the American economy on a path to prosperity.

But in the aftermath of the 2008 financial crisis, his reputation was set in a different perspective: he was accused of having fuelled the preceding boom, and admitted to having found “a flaw” in his own lifelong free-market ideology.

The role of the “Fed” – America’s equivalent of the Bank of England – is to protect the dollar against inflation and to regulate the US banking system. Its control over dollar interest rates is one of the most powerful management tools in the US economy, and by the end of his 18 years in office, in January 2006, Greenspan’s record in that respect was regarded with almost universal awe – and not only by the denizens of Wall Street who had profited from an era of cheap money.

There was no doubt that his interventions to alleviate stock-market crashes in 1987 and 2001, and in the aftermath of Russian default and the collapse of the LTCM hedge fund in 1998, made a crucial difference at home and abroad.

Central bankers and finance ministers elsewhere were also eager to pay homage: Gordon Brown – ideologically distant but nevertheless an admirer – invited the Fed chairman to join him in celebrating the memory of Adam Smith at Kirkcaldy in 2005, and when Greenspan retired the then Bank of England governor Mervyn King presented him with a cartoon depicting him as a goalkeeper saving one penalty after another.

But a minority of critics felt that Greenspan was leaving behind a record of excessive monetary growth and failure to control asset bubbles – in the stock market in the late 1990s and the housing market in the mid 2000s – combined with a dangerous set of economic imbalances: a negative savings rate, a record current-account deficit and ballooning subprime mortgage and derivatives markets.

Not only that, said his detractors, but “the Greenspan put” – the belief that he would always save the day by dropping rates and injecting liquidity if markets tumbled and crisis loomed – had encouraged bankers into irresponsible patterns of behaviour and delusional attitudes to risk.

All these factors certainly contributed to the crisis of 2008, but Greenspan at first spoke out against heavier regulation of the financial sector in response. “Market flexibility and open competition,” he said, remained “our most reliable and effective safeguards against cumulative economic failure.”

But in testimony to a Congressional committee in October 2008 he declared himself to be “in a state of shocked disbelief” at bankers’ failure to protect their investors’ interests, to be at least “partially” wrong about the need for more regulation, and to have “found a flaw” in his own long-held belief in the power of unfettered capitalism to do the right thing. “I don’t know how significant or permanent it is. But I have been very distressed by that fact… because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

Alan Greenspan was born in New York on March 6 1926. His father was a stockbroker, but his parents divorced and he was brought up by his mother. At the age of five he displayed a precocious affinity with numbers, including the ability to memorise major league baseball batting averages. He was educated at George Washington High School and went on to study music at the Juilliard School.

He went on the road as a tenor sax and clarinet player with the Henry Jerome Band. Jazzmen of that era were famously bohemian, but Greenspan devoted his spare time to doing the band’s accounts and reading books on economics. “He never even took a drink,” Jerome recalled. Another acquaintance compared Greenspan to Clark Kent, Superman’s clean-living, bespectacled alter ego.

After a year with the band, Greenspan enrolled at New York University to take a masters degree in economics. He then embarked on (but did not complete) a doctorate at Columbia, where he became a protégé of the economist Arthur Burns, who would become chairman of the Fed during the 1970s.

In 1953 Greenspan formed a consultancy firm with William Townsend, a former Wall Street bond trader, to provide research and forecasting for corporate clients. Greenspan became president of the firm when his partner died in 1958.

In 1952, Greenspan first came under the influence of Ayn Rand, the Russian-born novelist and philosopher whose theory of “Objectivism” promoted “rational selfishness”, the belief that society functions most efficiently when people pursue their own self-interest.

Greenspan was already, in his own words, “a free enterpriser in the Adam Smith sense”, but Rand made him understand “why capitalism is not only efficient and practical, but also moral”. The welfare state, on the other hand, was “nothing more than a mechanism by which governments confiscate the wealth of the productive members of society”.

It was at Rand’s instigation that Greenspan joined Richard Nixon’s presidential campaign team in 1967 as director of domestic policy research. Though he declined the offer of a full-time post in the Nixon administration, he went on to serve on a number of economic committees, and in 1974 (encouraged by Burns, who told him it was his patriotic duty to fight inflation) he reluctantly accepted the post of chairman of the White House council of economic advisers.

By the time he took up the job, Nixon had fallen. During the three years of Gerald Ford’s presidency, Greenspan played a part in reducing inflation from 11 per cent to 6.5 per cent, but while doing so he made a rare public gaffe: “If you want to examine percentage-wise who was hurt most [by inflation],” he said, “it was Wall Street brokers.” Percentage-wise, he may have been right, but he later felt obliged to add: “Obviously the poor are suffering more.”

After the election of Jimmy Carter in 1976, Greenspan returned to consultancy work. He held directorships of, among others, Morgan Guaranty Trust, Mobil and General Foods; he also launched an unsuccessful fund-management venture and appeared in television ads for Apple computers.

From 1981 to 1983 he served on Ronald Reagan’s National Commission on Social Security Reform, and in August 1987 Reagan chose him to succeed the hugely respected and fiercely independent Paul Volcker, the Jimmy Carter appointee who had defeated inflation in the early 1980s, as chairman of the Fed.

There were initial fears that Greenspan was too much the political appointee. But though he was a lifelong Republican he was never a rigid ideologue; rather, as one friend put it he was “an eclectic economist with a very conservative bent” who made decisions according to the data on his desk.

Within a month of taking office, inflationary signals led him to raise the Fed discount rate (at which it lends to member banks) from 5.5 per cent to 6 per cent, the first rise since 1984. At the same time he alerted his staff to the possibility of a stock-market crash – which duly followed, in October, on “Black Monday”. Greenspan spent the night on the telephone from a Dallas hotel room, soothing the fears of key market players. The crash forced him into a monetary U-turn – he pumped liquidity into the system to stave off collapses – but he was widely praised for his handling of it.

Though the recession of the early 1990s was the inevitable aftermath of the excesses of the 1980s, Greenspan’s judiciously timed interest rate cuts helped to shorten its duration and resolve the “savings and loan” crisis – the threatened collapse of smaller banks as a result of an explosion of bad debts. Exercising his customary caution, however, Greenspan was unwilling to reflate too quickly, in a way that might have helped George Bush Sr towards re-election in 1992.

During the presidency of Bush’s successor, Bill Clinton – with whom, despite political differences, he formed a good working relationship – Greenspan was universally praised for his skill in anticipating inflationary impulses during a period of sustained growth. By the time his nomination for a third four-year term was belatedly confirmed by the Senate (by 91 votes to 7) in 1996, the US economy had seldom been in better shape, with low inflation and unemployment, growth at well over 3 per cent and a roaring stock market.

Pundits disagreed as to whether this was largely Greenspan’s doing, or whether it was attributable to the so-called “new paradigm” (of efficiency driven by technology and cost-cutting) which seemed to enable high growth rates to be sustained without rising inflation. Either way, 98 per cent of chief executives of Fortune magazine’s list of the top 1000 US companies endorsed Greenspan’s re-appointment. When he appeared before Congress to talk about the economy in 1997, one senator called him “a national treasure”. “We thought about just giving you a standing ovation and saying let’s go home,” said another.

The utterances of the Fed chairman came to be minutely scrutinised for indications of the health of the economy and the future movement of interest rates. Greenspan’s use of the phrase “irrational exuberance” to describe surging US asset prices in December 1996 temporarily knocked £25 billion off the value of British shares, and much more in Wall St and elsewhere.

Another warning in October 1997, about the inflationary risk of a tightening labour market, caused a further sharp fall. As stocks bounced to record heights in early 1998, investors waited on tenterhooks for pronouncements from Greenspan which – combined with the impact of the financial crises then sweeping through Asia – might trigger a market collapse. But more often than not, the phlegmatic Greenspan contrived to keep his views impenetrable, or at least open to a range of interpretation. “If I’ve made myself too clear, you must have misunderstood me,” was probably his most famous remark.

Greenspan deployed acute political antennae, a dry wit and a courteous manner, but little small talk. He loved statistical detail and enjoyed baffling sophisticated audiences with reference to “weakness in Class 8 truck orders” and other minutiae. The opacity of his public statements left some politicians and traders frustrated: “You wouldn’t want him to write the instructions for assembling a beach chair,” said one.

A speech in Seattle in 1995 produced the headlines “Greenspan sees chance of recession ahead” in The New York Times and “Fed chairman does not see recession on the horizon” in The Washington Post. Greenspan was reportedly so pleased that he ordered framed copies.

He published a memoir, The Age of Turbulence, in 2008, and The Map and the Territory, an analysis of the pitfalls of economic forecasting, in 2013. His final published book was Capitalism in America: A History (with Adrian Wooldridge, 2018). He held the Presidential Medal of Freedom, was a Commander of the Légion d’honneur and received an honorary knighthood from Queen Elizabeth II in 2002.

For relaxation, Greenspan enjoyed a game of tennis, supported the New York Mets baseball team, and continued to play the clarinet when time permitted. In 1952 he married the artist Joan Mitchell (she introduced him to Ayn Rand), but the marriage lasted less than a year. Thereafter he remained a bachelor until he was past 70, though he was frequently seen at high-powered parties in New York and Washington in the company of glamorous escorts such as the broadcaster Barbara Walters.

Finally, in 1997, after a 12-year courtship, he married Andrea Mitchell, a correspondent for NBC. One observer noted that he allowed himself to smile once or twice during the ceremony; another that he wore his customary old blue suit, but that he planted “a long, long kiss” on his bride. She survives him.

Alan Greenspan, born March 6 1926, died June 22 2026

[Source: Daily Telegraph]