Perhaps there is redemption after a Fed chairmanship after all.
There have been three chairmen of the Federal Reserve Board of Governors in my adult life. In the month of my 20th birthday, Paul Volcker was appointed, just in time to try to guide us through the most inflationary recession in recent economic history. His name became a household word as people wondered why the most potent economist on the planet could not bring our economy back to normal more quickly and less painfully.
Alan Greenspan followed Volcker’s tumultuous and challenging years. Greenspan rose to the position on the wave of Reagan deregulation. An ardent Ayn Rand devotee, Greenspan believed that almost all markets, and especially financial markets, benefit most when they are regulated the least. Like many ideologues, he saw little value in nuance, and preferred broad and sweeping conclusions to the usual “on the one hand, on the other hand” approach of more highly trained economists.
Greenspan’s philosophy was embraced by Bush I, and then Clinton. In fact, the Clinton administration was far more zealous in its financial market deregulation than Reagan had been. Greenspan, and his ideological brother, Larry Summers, orchestrated the passing of provisions that ensured the burgeoning financial derivatives industry would remain essentially out of the reach of regulation.
When Greenspan’s philosophy led to the Credit Default Swap meltdown, the freefall of AIG into the federal government’s nicely padded safety net, the freezing of global financial markets, and the worst recession since the Great Depression, he left one stinking mess in the lap of Ben Bernanke. Poor Ben. He definitely did not see that coming. And, Alan Greenspan almost apologized when he admitted that his unqualified faith in unfettered markets may have been a bit misplaced.
Things have come full circle. The first of this trio, Paul Volcker, was asked to come up with some regulations that would prevent a financial meltdown from occurring again.