Alan Greenspan’s passing marks the end of an era

Amid all that, Greenspan presided over the world’s most powerful central bank for almost two decades. He served under both Democratic and Republican presidents and enjoyed enormous prestige and credibility with the capital markets.

Tragically, his stance against stricter supervision of the US financial and banking systems – in the name of free-market principles – came back to haunt him, tarnishing a legacy that could have been one for the ages.

The subprime mortgage crisis, caused by poorly regulated financial engineering and complicated derivatives that Greenspan once praised, triggered a nationwide real estate collapse. It was only a matter of time before the US property bubble burst, but its severity threatened the entire US banking system, leading to the most extraordinary and wasteful rescue by the US government. Financial contagion spread globally, but advanced Western economies proved to be the most exposed, culminating in the euro zone crisis.

Greenspan had already left office by that time, but the key role he played in resisting much-needed regulations to contain accumulating risks in the system made him at least partly responsible for the crises. His successors Ben Bernanke and Janet Yellen helped save the day, but the costs were so high they are still being paid today.

Even today, Greenspan still has legions of fans. Some are in Hong Kong, where the free-market principles he championed – always more myth than reality in the colonial era – supposedly found their purest realisation. Now, though, the world is very different. During the Great Recession, China’s expansionist economic policy kept global growth and the world economy from falling off a cliff.