Alan Greenspan will today offer his most sophisticated defence so far of his role as chairman of the Federal Reserve in the build-up to the 2008 financial meltdown, hitting back at claims that the Fed’s low short-term interest rates were the cause of the US housing bubble.
In his paper, entitled The Crisis, Mr Greenspan admits that regulators underestimated the scale of the asset price bubble. But he attributes the failing, among others, to overseas regulators, the US credit rating agencies, financial houses and mainstream economics.
“In the growing state of high euphoria, risk managers, the Federal Reserve, and other regulators failed to fully comprehend the underlying size, length and impact of the negative tail of the distribution of risk outcomes,” Mr Greenspan writes.
However, he adds: “To this day, it is hard to find fault with the conceptual framework of our [financial risk management] models as far as they go.”
In addition, Mr Greenspan responds directly to the criticisms of John Taylor, the Stanford economist and author of an eponymous rule on monetary policy, who said the former Fed chairman had partially caused the crisis by keeping short-term interest rates too low for too long.
Full story: FT.com / UK – Greenspan hits back at claims he caused housing bubble