Alan Greenspan, the Blind Oracle

A response to his essay asserting that no one foresaw the 2008-09 financial cataclysm

In his recent Foreign Affairs essay “Never Saw It Coming” (November/December 2013), Alan Greenspan makes two central arguments: first, that virtually no one foresaw the 2008 U.S. financial crisis and, second, that irrational “animal spirits” were the root cause. If true, these propositions would absolve policymakers such as Greenspan of blame. But neither holds water.

The truth is that many experts worried about the U.S. housing bubble, warned that unregulated derivative were “weapons of financial mass destruction,” and predicted a crash, even if they couldn’t pin down its timing or severity. Secondly, the imbalances, malfeasance and outright corruption in the financial markets were a direct result of Greenspan’s refusal to even monitor, let alone regulate, financial derviatives, despite having been given the power to do so by Congress.

This is my response to Greenspan in Foreign Affairs.