The man who once defined the mood of global markets has finally closed his last account. Alan Greenspan, the former Federal Reserve chairman who presided over two decades of economic expansion and crisis, died yesterday at the age of 100. For the City of London, his passing marks the end of an era when central bankers were treated as oracles rather than politicians in suits.
Greenspan’s tenure from 1987 to 2006 was a masterclass in market manipulation wrapped in the cloak of data-driven policy. He was the high priest of what became known as the 'Greenspan put' – the implicit guarantee that the Fed would always step in to prevent a market collapse. This belief fuelled a generation of risk-taking, from the tech bubble to the housing mania that followed. His famous 'irrational exuberance' speech in 1996 was a classic warning that went unheeded, largely because he refused to lift interest rates. When the dot-com bubble burst, he slashed rates to 1%, planting the seeds for the next crisis.
But let us not be churlish. Greenspan’s legacy is more nuanced than simple bubble-blowing. He navigated the 1987 crash, the Asian financial crisis, and the end of the Cold War with a coolness that modern central bankers can only envy. His flexible approach to inflation targeting – what he called 'risk management' – allowed the US economy to achieve remarkable productivity gains. The City of London benefited enormously from this stability. London’s financial sector grew fat on the back of American monetary policy, absorbing the liquidity that Greenspan’s Fed pumped into the system.
Yet his greatest failure was his unwavering faith in markets. He believed that financial innovation would always self-correct, a view that led him to oppose regulation of derivatives. 'The vast increase in the size of the over-the-counter derivatives market has been a source of particular concern,' he admitted in 1998, but then did nothing. When the subprime crisis hit in 2008, it was a direct consequence of his laissez-faire philosophy. The City, which had copied Wall Street’s excesses, felt the pain acutely.
For today’s markets, Greenspan’s death comes at a time of déjà vu. Inflation is again a spectre, central banks are raising rates, and the 'Greenspan put' is being revived in the form of the 'Powell put' or the 'Bailey backstop'. The cycle continues. Gilt yields wobbled on the news, as traders briefly wondered if his passing might trigger a reassessment of risk. But as always, speculators quickly moved on. 'The market has already priced in his death,' one trader quipped.
Greenspan was a maestro of the 'fear and greed' cycle. His passing reminds us that markets are ultimately driven by human emotion, not just spreadsheets. The City will raise a glass of expensive claret to his memory tonight. But they will also check their positions tomorrow. Because in finance, the only constant is change – and the next bubble is already forming somewhere.
Keywords: Alan Greenspan, death, obituary, Federal Reserve, interest rates, financial markets, inflation, central banking, City of London, bond yields
