Key Player in 2008 Economic Crisis, Former Federal Reserve Chairman Alan Greenspan Dead at 100

Alan Greenspan, Federal Reserve Chairman from 1987 to 2006, died on June 22 at age 100. While leading the Federal Reserve, Greenspan created policies that deregulated monopolies and promoted speculative investment, which intensified the devastation suffered by workers during the 2008 economic crisis.

Greenspan was a friend and follower of the ultra-reactionary, anti-communist author Ayn Rand, a child of the Russian bourgeoisie who moved to the US in 1926. She was the figurehead for the reactionary philosophy known as “objectivism” that encourages extreme deregulation and individualism, positing that the wage system, exploitation, and the domination of the laboring many by a profit-gobbling few is the natural order.

Greenspan had succeeded Paul Volcker as the head of the Federal Reserve. Volcker spent the 1980s as Federal Reserve Chairman, gutting unions, cutting public welfare spending, and driving down wages in service to monopoly capital through the “Volcker Shock.” As US imperialism deepened its decomposition, Greenspan picked up where Volcker left off, carrying out massive deregulation that allowed the financial oligarchy to drink so much of the people’s blood that it became bloated to the point of severe crisis. Volcker would later head President Obama’s Economic Recovery Advisory Board established in 2009 following the onset of the economic crisis.

Greenspan’s approach to the 1987 stock market gave rise to the general capitalist crisis aversion tactic known as the “Greenspan put,” which directs the Federal Reserve to immediately cut interest rates and bail out monopolies whenever the stock market suffers a major shock, encouraging monopolies to prioritize short-term profits at the cost of long-term stability.

In the 1990s, Greenspan fought against regulation and oversight for derivatives, culminating in Congress passing the Commodity Futures Modernization Act of 2000, creating untraceable debt that lets financial institutions accumulate obligations without sufficient reserves.

Following the 2000 stock market crash, during which heavy investment speculation backfired, Greenspan declined to use available tools (such as raising margin requirements) to mitigate the damage. Instead, Greenspan led an initiative to lower the federal funds rate from 3% to eventually 1% in 2003, making money easier to borrow.

As Federal Reserve Chairman, Greenspan could have used the Home Ownership and Equity Protection Act to discourage predatory lending but opted not to in accordance with his individualist, “free market” ideology. In 2004, he encouraged home buyers to take out adjustable-rate mortgages, claiming that they would be cheaper overall than fixed-rate mortgages. Millions took his advice and saw sharply rising interest rates and monthly payments, resulting in the foreclosure of 850,000 properties in 2008.

In the early 2000s, Federal Reserve governor Edward Gramlich warned Greenspan about the long-term risks of high-risk mortgages offered to people with poor credit, but Greenspan ignored the warning. Known as subprime mortgages, these risky loans enriched financiers while costing millions of workers their jobs and savings.

The culmination of Greenspan’s ideology and decisions was the inevitable 2008 economic crisis, which he exacerbated for working people through selectively bailing out monopolies and predatory lenders. The crisis resulted in nearly three million foreclosures in 2009, an unprecedented number, and caused the unemployment rate to more than double. It wasn’t until an October 2008 congressional hearing that he half-heartedly admitted the flaws of his ideology, stating that he still didn’t “understand why it happened.”

The 2008 economic crisis was not simply a product of Greenspan’s irresponsible ideas, as the agents of the bourgeoisie like to say. The idea that an individual like Greenspan can cause a devastating economic crisis implies that we can avoid such disasters by simply crafting better capitalist economic policy. The 2008 economic crisis was, rather, an expression of capitalism’s inevitable and cyclical crisis of overproduction. Greenspan’s limited but despicable role was to guide the 2008 crisis to enrich the monopolists and to intensify the suffering of workers, resulting in enormous wealth gains for the capitalist class while increasing misery for the working class.

Certain monopolies profited greatly from the crisis. JPMorgan Chase, for example, used the opportunity to buy out competitor Bear Stearns for $10 a share, about 15% of its previous value, in March 2008. In September 2008, the Federal Deposit Insurance Corporation (FDIC) sold the bulk of Washington Mutual (the parent company of the US’s largest savings and loan association at the time) to JPMorgan Chase. Nonetheless, JPMorgan Chase later received a $25 billion bailout from the Treasury in October 2008.

Image: Alan Greenspan delivers a keynote in 2015. Credit: Paul Morigi.

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