The man who once argued that markets could price risk better than any regulator has finally priced his own final risk. Alan Greenspan, Federal Reserve chairman for 18 years and the architect of American economic dominance in the late 20th century, has died at 100. Markets, predictably, are in mourning. But as a lifelong student of The Bottom Line, I find myself reflecting on a legacy that is far more complex than the eulogies suggest.
Greenspan took the helm of the Fed in 1987, just in time for Black Monday. His response was swift, providing liquidity and stabilising markets. It set the tone for a chairmanship that would be defined by crisis management: the savings and loan collapse, the Asian contagion, the dot-com bubble, and 9/11. For two decades, he was the maestro, conducting an orchestra of interest rates and money supply with what seemed like perfect pitch.
His philosophy was simple: markets know best. Deregulation, financial innovation, and the efficient allocation of capital were his gospel. Under his watch, the US economy boomed, inflation was tamed, and the world looked to the Fed as the ultimate guarantor of stability. Yet that very faith contained the seeds of disaster. The low interest rates and light regulation he championed after the dot-com bust fuelled the housing bubble that would nearly destroy the global financial system.
Critics call him the father of the 2008 crisis. It's a harsh label, but not entirely unfair. His belief that derivatives and securitisation had made the system more resilient was, in hindsight, a catastrophic misjudgment. He was right that markets could price risk. But he forgot that they could also misprice it, spectacularly.
Now, as the world mourns, we must ask: what would the Maestro make of today's economy? Inflation above 3%, gilt yields at multi-year highs, and central bankers scrambling to regain credibility after years of quantitative easing. He would likely scoff at the government spending sprees and the reliance on central bank balance sheets. He believed in fiscal responsibility, not fiscal dominance. He would be alarmed by the capital flight from emerging markets as the dollar strengthens, a pattern eerily reminiscent of the crises he navigated.
Yet there is also a lesson his successors have ignored. Greenspan understood that markets are driven by animal spirits. He was not afraid to let them run, even if it meant occasional corrections. Today's central bankers are terrified of volatility, constantly intervening to smooth every wobble. This has created a generation of investors who have never seen a proper bear market, let alone a crash. The price of that insurance will come due eventually.
As the FTSE 100 opens lower and the pound dips against the dollar, the City pays its respects. But let's not canonise the man. Greenspan was a brilliant economist, but he was also fallible. His legacy is a reminder that even the most brilliant financial architects can blunder. The real tribute to his memory would be a return to the principles he championed: sound money, efficient markets, and fiscal discipline. Or as he might have put it, the price of stability is eternal vigilance. And that price has just gone up.