At the outset of his last year as chairman of the Federal Reserve, Alan Greenspan had a warning. ¡°History cautions,¡± he told Congress in 2005, ¡°that people experiencing long periods of relative stability are prone to excess.¡±
The idea wasn¡¯t unique to Greenspan, who passed away late last month at the age of 100. These days, the notion that stability breeds instability is associated with the economist Hyman Minsky, a trenchant critic of the modern financial system. But Greenspan, possibly that system¡¯s most ardent defender, was alive to the risk. That raises the critical question for any discussion of a legacy that includes presiding over 18 years of almost uninterrupted prosperity: Why did he fail to counter the complacency and could he have thwarted the disaster that engulfed global finance two years after he left the Fed?
Greenspan had an extraordinary life. Brought up the child of German-Jewish immigrants in uptown Manhattan, he became a professional jazz musician and devoted disciple of the libertarian philosopher Ayn Rand on his way to power at the Fed, an institution he¡¯d once said should not exist.
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