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Alan Greenspan was Chairman of the Federal Reserve from 1987 to 2006.
Summarize the actions taken during Alan Greenspan's tenure as chairman of the Federal Reserve Board of Governors
In 1987, Greenspan stated that the Fed was ready "to serve as a source of liquidity to support the economic and financial system" following the stock market crash.
Greenspan influenced each presidency during his tenure as chairman. He provided economic consultation for President Clinton and assisted in the deficit reduction program in 1993.
He raised interest rates several times in 2000 which was likely this cause of the bursting of the dot-com bubble. In 2001, Greenspan began to lower interest rates. By 2004, the Federal Funds rate was 1%.
In 2004, Greenspan urged homeowners to take out ARMS. Over the next two years, the interest rates increased to 5.25% which contributed to the mortgage crisis in 2007.
Alan Greenspan is an American economist who served as the Chairman of the Federal Reserve of the United States from 1987 to 2006. He had the second longest tenure in the position. He was appointed by Ronald Reagan in 1987 and reappointed in four-year intervals, finally retiring on January 31, 2006 .
The stock market crashed in 1987 shortly after Greenspan became Chairman of the Federal Reserve (the Fed). He stated the the Fed was ready "to serve as a source of liquidity to support the economic and financial system. " Throughout his early years as chairman, Greenspan impacted all the presidencies in various ways. President George H.W. Bush blamed federal policy when he was not reappointed for a second term.
During President Clinton's terms in office, Greenspan was consulted regarding economic affairs and assisted in the 1993 deficit reduction program. As a whole, the 1990s saw healthy economic growth.
The most notable actions taken during Greenspan's tenure as chairman began in 2000. He raised interest rates several times in 2000 which was likely this cause of the bursting of the dot-com bubble. In 2001, Greenspan and the Fed initiated a series of interest cuts that brought the Federal Funds rate down to 3% following the September 11, 2001 terror attacks. The Federal Funds rate continued to drop until it was 1% in 2004. Greenspan believed that a group in rates would lead to a surge in home sales and refinancing. In February of 2004, Greenspan suggested that homeowners should consider taking out adjustable-rate mortgages (ARMS) where the interest rate adjusts to the current interest rate in the market. A few months later, Greenspan began raising the interest rates. Interest rate funds increased to 5.25% about two years later.
The Housing Bubble
In 2007, only months after Greenspan retired, the subprime mortgage crisis occurred in the United States. It is suggested that Greenspan's easy-money policies were the leading cause of the mortgage crisis. When homeowners took out subprime ARMS in 2004, the interest rates were set much higher than what the homeowners paid the first few years of the mortgages. In 2009, Robert Reich explained that the lower interest rates in 2004 allowed banks to borrow money for free. As a result, the banks borrowed large amounts of money, lent it out to borrowers, and earned substantial profits. Without government oversight for lending institutions, banks lent money to unfit borrowers. Greenspan did not think the oversight was necessary. He trusted that the market would weed out bad credit risks, but it did not. In 2008, Greenspan admitted during Congressional testimony that he had put too much faith in the self-correcting power of free markets. He had not anticipated the self-destructive power of irresponsible mortgage lending. Greenspan did not accept responsibility for creating the housing bubble that led to the mortgage crisis. He simply stated that he did not believe in deregulation as strongly following the crisis.