Alan Greenspan, the man who once described the stock market as 'irrational exuberance,' has died at the age of 100. For a generation of investors, Greenspan was the oracle of American capitalism. But as someone who spent two decades in the City, I cannot help but wonder: how much of today's market volatility is his legacy?
Let us not mince words. Greenspan's tenure as Federal Reserve chairman from 1987 to 2006 was a masterclass in market manipulation. He cut interest rates after the 1987 crash, flooded the system with liquidity before Y2K, and kept rates too low for too long after the dot-com bubble burst. The result? A housing bubble that nearly wrecked the global economy. Yet the markets loved him. The 'Greenspan put' became a byword for central bank backstops.
Today, as news of his death trickles into London trading desks, gilt yields have ticked higher. The FTSE 100 opened flat, but there is a nervous undercurrent. Why? Because Greenspan's death forces a reckoning. His era of cheap money and deregulation is a ghost that still haunts us. Inflation, now sticky at 4%, is partly the hangover from his policies. The Bank of England is still trying to sober up.
Capital flight is the immediate risk. Foreign investors, already jittery about UK fiscal discipline, will see Greenspan's passing as a reminder of how fragile the system is. The dollar will weaken, and sterling will wobble. But there is a deeper concern: Greenspan's intellectual legacy. He championed the efficient market hypothesis, the idea that prices reflect all available information. But 2008 proved that markets are not efficient; they are emotional. They panic.
Today's market reaction is telling. Safe-haven buying of US Treasuries? No. Instead, yields rise. Investors are pricing in a future without the 'oracle.' Without the man who could soothe markets with a single sentence. The Bank of England governor will issue a platitude about Greenspan's 'immense contribution,' but the truth is that central bankers now operate in a world he created. A world of quantitative easing, zero interest rates, and asset bubbles.
What would Greenspan think of today's Britain? He would be appalled by the budget deficit. He would mutter about fiscal responsibility. He would likely blame the government's spending addiction for the pound's decline. And he would be right.
The bottom line? Greenspan's death is not a shock; it is a symbol. A symbol of an era when central bankers were gods. Now, they are mere mortals. Markets will move on, but the scars remain. For the City, the lesson is clear: never confuse a bull market with genius. And never expect a central banker to save you from your own greed.
