Greenspan Denies Responsibility for Housing Bubble Alan Greenspan, the former chairman of the Federal Reserve, insists the housing bubble had relatively little to do with him. After guiding the economy for 19 mostly prosperous years, he now faces criticism for drastically lowering interest rates.
NPR logo

Greenspan Denies Responsibility for Housing Bubble

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Greenspan Denies Responsibility for Housing Bubble

Greenspan Denies Responsibility for Housing Bubble

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


Former Federal Reserve Chairman Alan Greenspan insists the housing bubble and then later declines announcing has relatively little to do with him.

ALAN GREENSPAN: If you're going to argue that the bubble in the United States is the result of Federal Reserve policy, this argument is a very shallow, very short-sighted argument in my judgment.

INSKEEP: And while his explanation is hotly debated, it offers insight into how Greenspan thinks the world economy is changing. The Federal Reserve controls only the interest on short-term loans. Around 2004, the Fed started raising those short-term rates once again, yet Greenspan discovered that people who made long-term loans like mortgages hardly paid attention.

GREENSPAN: And having lost control of long-term interest rates, we were significantly incapable of affecting long-term, 30-year mortgage rates. We and all other central banks lost control of the forces directing higher prices in homes.

INSKEEP: Are you saying that you found out you had less power than you had when you started as Fed chairman?

GREENSPAN: That's what the data show.

INSKEEP: The world economy has grown so dramatically after the fall of communism, there's so much money to be invested, that in effect, interest rates are going to go down no matter what central banks do. You're overwhelmed.

GREENSPAN: No. They will be determined by the supply and demand forces in the global market, which doesn't necessarily mean that interest rates will continue down. It is the case...

INSKEEP: That they have gone down.

GREENSPAN: ...that they have. But what I point out is that we're in a turning phase and that the extraordinary improvements that have occurred in the world economy in the last 15 years are transitory and they're about to change.

INSKEEP: Has the economy changed in such a way in recent years that some of your basic beliefs that you've long held have to be reevaluated now?

GREENSPAN: No. What has changed is not my beliefs of how the markets work. If anything, they have been reinforced. Market competition is the general way every major economy developed, and developing, has gone. The most extraordinary example is China. China is moving towards capitalism. It doesn't say that, obviously, it can't, but that's precisely what it's doing and the effects are unbelievable. And hundreds of millions of people have moved out of abject poverty in China, India and elsewhere. And these are the result of market forces. I do raise questions about the implications of the increasing degree of inequality as a consequence of a lot of the high-tech changes that have occurred.

INSKEEP: Inequality in societies, between the richest and the poorest.

GREENSPAN: I mean inequality of income, very specifically, which is clearly a consequence of the dramatic globalization which is creating a much higher premium on skills rather than non-skills. And I - in my book, discuss at great length, the failures in our education system which have put our primary and secondary schools down at the lower level internationally in math and science. And this is a major problem in our maintaining balance between various different income groups, which is what we had from the end of World War II probably through to 1980 or somewhere later than that.

INSKEEP: Is there a statistic or a number that you would follow or point us to that may tell us overtime which way the economy is going next?

GREENSPAN: Well, I don't think that we have yet captured the characteristics of how economies behave in a manner which enables us to forecast very well, because a recession changes the psychology. You go from a state of euphoria to primordial fear and that's a different form of market. And it happens unexpectedly. Because if you could forecast it, it wouldn't happen because markets would adjust. So what I have to forecast is that something will happen, which is unexpected, which will knock us down. But the odds of that happening, I think, are rising because we are getting in vulnerable areas. The record of forecasting, not only of myself and companies I've developed, but professional as a whole, is not particularly spectacular. And I've been forecasting since the early 1950s. I was as bad then as I am now.

INSKEEP: Have we - meaning the media or businesses or consumers - have we been mistaken to pay so much attention to everything you've said over the years or that your successor says now?

GREENSPAN: Yes. I mean, I often thought, when people came up to me and they said thank you for my 401K. As I say in my book, I was embarrassed by how to respond to that because I would like to have said I had nothing to do with your 401K, madam, but I didn't want to be ungrateful because we've had an extraordinarily major global boom - the consequence of forces which central banks had very little to do with.

INSKEEP: When was a moment earlier in your life when you knew you'd be spending your life studying giant economic forces or trying to influence them as opposed to being a musician or anything else that might have been on your mind?

GREENSPAN: Well, it was - when I turned from being a fairly good amateur musician to become a professional and realized, for example, having sat next to Stan Getz for a year, that there was something he had that I didn't. And so there was an epiphany somewhere along the line which said, since in your spare moments you seemed to be reading economic texts...

INSKEEP: Which Stan Getz probably did not enjoy.

GREENSPAN: I'm certain that he did not, and he did not have to.

INSKEEP: Well, what do you love about economics?

GREENSPAN: It's fascinating because it's a major part of the way societies govern themselves and the way people behave in a majority of their time. And it is a never-ending challenge because we cannot know the future, but we cannot resist trying. It's built in to our nature.

INSKEEP: Mr. Greenspan, thank you very much.

GREENSPAN: My pleasure.

INSKEEP: Next, let's get some responses to today's news that Benazir Bhutto, opposition leader, former prime minister of Pakistan - has been assassinated after a campaign rally. The responses we've heard today include this, from Fasi Zaka, he's a columnist and TV host in Pakistan.

FASI ZAKA: It's been incredibly - a sullen feeling for most people. because to most, she was such a larger than life figure, that the thought that she's dead actually hasn't settled in. So, most people are in a state of shock right now and everybody across the whole spectrum of people are deeply saddened by what's happened.

INSKEEP: This is NPR News.

Copyright © 2007 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.