The man who arguably did more than any other central banker to shape the modern financial landscape, Alan Greenspan, has died at the age of 100. For those of us who spent the 1990s watching his every syllable, it feels like the passing of an era. Greenspan was not just a Federal Reserve chairman; he was a market deity. His famous phrase ‘irrational exuberance’ became the anthem of a generation of investors who were about to learn just how painful rational sobriety can be.
From a City of London perspective, Greenspan’s legacy is a complex balance sheet. On the asset side, his deft handling of the 1987 stock market crash prevented a systemic collapse. His decision to keep interest rates low in the aftermath of the dot-com bust arguably staved off a deeper recession. But the liability column is weighty. The very low rates that followed 9/11 and the subsequent housing bubble were a direct precursor to the 2008 financial crisis. The City’s traders and fund managers remember the hangover all too well.
Markets this morning are predictably jittery. Gilt yields have edged lower as investors seek safety, and the pound has weakened against the dollar. There is a sense of nostalgia, but not panic. Greenspan has been out of the spotlight for years, and the Fed has long since moved on. Yet his death serves as a stark reminder of the power of central bank communication. When Greenspan spoke, markets listened. That level of influence has never been replicated.
Sceptics will point out that Greenspan’s belief in deregulation and efficient markets contributed to the very crisis that tarnished his reputation. The City, with its entrenched financial hub, benefited enormously from the globalisation of capital flows that he championed. But we also paid the price when those flows reversed with alarming speed in 2008.
As the Square Mile pauses to reflect, the question remains: would Greenspan, with his deep understanding of data and his almost mystical faith in market forces, have been able to navigate the post-2008 world of zero interest rates and quantitative easing? Probably not. He was a man of his time. But that time was one of extraordinary prosperity and, ultimately, profound vulnerability.
For now, the flags at the Bank of England fly at half-mast. The City’s collective portfolio includes this towering figure as a long-term asset and a fading liability. R.I.P. Alan Greenspan. Your numbers added up, but sometimes the balance of history takes longer to settle.
