Greenspan's decision to keep the federal funds rate at historically low levels from 2001 to 2006 is in no way responsible for the collapse of the credit and housing markets that currently has the global economy in freefall, he claims in today's Wall Street Journal.
Rather, he cited the words of free-market guru Milton Friedman who gave Greenspan's work the highest praise.
U.S. & World
"(Friedman) wrote on this page in early 2006: 'There is no other period of comparable length in which the Federal Reserve System has performed so well. It is more than a difference of degree; it approaches a difference of kind.'"
Instead, Greenspan blames "Global market competition and integration in goods, services and finance," saying that "the growth path of highly competitive markets is cyclical. And on rare occasions it can break down, with consequences such as those we are currently experiencing."
Without putting his finger on it, Greenspan blamed greed for bringing down the system.
"Market practitioners at the height of their euphoria tried to push risk-management techniques and products were too much for even the most sophisticated market players to handle properly and prudently," wrote Greenspan.
Greenspan has been a target of criticism for lending practices and loan trading during his tenure as Fed chairman that some argue helped precipitate the economic downturn and caused the housing bubble.
The former chairman said that a "far more credible explanation" is the rate on long-term fixed-rate mortgages and noted that the world is "in the midst of a global crisis that will unquestionably rank as the most virulent since the 1930s."
But he said the currently "disabled" financial system will be righted.
"It will eventually subside and pass into history," Greenspan wrote of the economic crisis.
Greenspan's piece was published a day after current Fed chairman Ben Bernanke called for "a strategy that regulates the financial system as a whole ... not just its individual components," during a speech to the Council on Foreign Relations.