It may be that in his heart, Greenspan believed that "a central bank could act as a lender of last resort and hence successfully build and maintain an effective firewall between ... financial markets and the real flows", but that is not what he *said*. What he said was that "banks ... were best capable of protecting their own shareholders and equity in the firms" and that"the decisions of self-interested bankers would benefit not just their institutions but the financial system, the economy, and society as a whole". That is pretty obviously wrong according to the historical record, and not just from the perspective of 2026, since the litany of crises that Eichengreen reels off were solved by government interventions, not self-interested bankers.
I'm afraid that I do not think it plausible to write off Greenspan's connection with Objectivism as a youthful folly; it seems to me that his fundamental tragic flaw was a failure to grasp the principle of collective action. In that respect, the self-interested banker JP Morgan of 1907 was far ahead of the central banker of 2006.
There were three--maybe four--great unelected politicians in the 20th century. They were Alan Greenspan, J. Edgar Hoover, Hyman Rickover, and maybe Robert Moses. By "great", I do not mean "good." Within their spheres, elected politicians dared not tread.
A lender of last resort only works in liquidity crises--when the solvency of the system is unquestioned. Stronger medicine was needed in 1988 and 2008. Today's regulators are kidding themselves when they rely on bank insolvency law to keep the banks apart from the public fisc. A working bank insolvency law could preserve systemic solvency without government subvention, but Dodd-Frank ain't it, especially as implemented by financial regulators.
Also: on the subject of Fed chairs, I think it might be appropriate for you to share your opinions about Kevin Warsh. Warsh has ostentatiously repudiated the use of forward guidance from the Fed to shape the Fed's reaction function. Some people think this is bad, others think it is about time. Where do you stand? Whether you are for, against, or neither, I think that your readership would be interested in the reasons for your opinion.
"the ability of the financial crisis of 2007-2008 to generate the Great Recession of 2008-2010 and the full decade of ænemic recovery that followed"
The financial crisis of 2007-2008 did not "generate" the Great Recession. That was gemerated by the failure of the Fed to do its job of keeping inflation humming along at al least about 2% p.a. and announced that it would do so. It had the instruments. EFFR was not zeroed until November. It could have started QE in September 2008 not January 2009 and could have done so in non-self limited quantaties. And once it had allowed the recession to start, it probably should have aimed for more than 2%. There is no excuse for the price level remaining below the 2008 level growing at 2% until 2003!
And Alan Greenspan was not the only person who failed to scream about this atrocity of monetary policy.
It may be that in his heart, Greenspan believed that "a central bank could act as a lender of last resort and hence successfully build and maintain an effective firewall between ... financial markets and the real flows", but that is not what he *said*. What he said was that "banks ... were best capable of protecting their own shareholders and equity in the firms" and that"the decisions of self-interested bankers would benefit not just their institutions but the financial system, the economy, and society as a whole". That is pretty obviously wrong according to the historical record, and not just from the perspective of 2026, since the litany of crises that Eichengreen reels off were solved by government interventions, not self-interested bankers.
I'm afraid that I do not think it plausible to write off Greenspan's connection with Objectivism as a youthful folly; it seems to me that his fundamental tragic flaw was a failure to grasp the principle of collective action. In that respect, the self-interested banker JP Morgan of 1907 was far ahead of the central banker of 2006.
There were three--maybe four--great unelected politicians in the 20th century. They were Alan Greenspan, J. Edgar Hoover, Hyman Rickover, and maybe Robert Moses. By "great", I do not mean "good." Within their spheres, elected politicians dared not tread.
A lender of last resort only works in liquidity crises--when the solvency of the system is unquestioned. Stronger medicine was needed in 1988 and 2008. Today's regulators are kidding themselves when they rely on bank insolvency law to keep the banks apart from the public fisc. A working bank insolvency law could preserve systemic solvency without government subvention, but Dodd-Frank ain't it, especially as implemented by financial regulators.
Also: on the subject of Fed chairs, I think it might be appropriate for you to share your opinions about Kevin Warsh. Warsh has ostentatiously repudiated the use of forward guidance from the Fed to shape the Fed's reaction function. Some people think this is bad, others think it is about time. Where do you stand? Whether you are for, against, or neither, I think that your readership would be interested in the reasons for your opinion.
"the ability of the financial crisis of 2007-2008 to generate the Great Recession of 2008-2010 and the full decade of ænemic recovery that followed"
The financial crisis of 2007-2008 did not "generate" the Great Recession. That was gemerated by the failure of the Fed to do its job of keeping inflation humming along at al least about 2% p.a. and announced that it would do so. It had the instruments. EFFR was not zeroed until November. It could have started QE in September 2008 not January 2009 and could have done so in non-self limited quantaties. And once it had allowed the recession to start, it probably should have aimed for more than 2%. There is no excuse for the price level remaining below the 2008 level growing at 2% until 2003!
And Alan Greenspan was not the only person who failed to scream about this atrocity of monetary policy.
Yes: Paulson, Bernanke, and Geithner have never managed to give a coherent explanation of what they were thinking...