As the stock market tanks and countries around the world scramble to avoid even more financial damage, the man who was in charge of the Central Bank for 18 years, Alan Greenspan, testified before Congress for the first time on the economic crisis and addressed whether his own personal financial ideology was flawed.
Lawmakers questioned whether Greenspan's faith in free, competitive markets to fix themselves and find the best path to economic growth created the conditions that led to the housing bubble that eventually burst and lead to the current situation.
Greenspan said that the housing crisis and the resulting financial upheaval had shown him a flaw in his ideology, but that predicting the crisis in such a complex global economy would have been nearly impossible. The first 7 and a half minutes of this video show highlights from Greenspan's testimony.
"The housing bubble became clear to me sometime in early 2006, in retrospect. I did not forecast a significant decline because we had never had a significant decline in prices. And it's only as the process began to emerge that it became clear that we were about to have what essentially was a global decline in home prices." - Alan Greenspan, Former Federal Reserve Chairman
"Remember that what an ideology is, is a conceptual framework with the way people deal with reality...And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact." - Alan Greenspan, Former Federal Reserve Chairman
"If you go back and ask yourself how in the early years anybody could realistically make a judgment as to what was ultimately going to happen to subprime, I think you're asking more than anybody is capable of judging." - Alan Greenspan, Former Federal Reserve Chairman
"We have this extraordinarily complex global economy, which as everybody now realizes is very difficult to forecast in any considerable detail." - Alan Greenspan, Former Federal Reserve Chairman
1. What caused the current global financial crisis?
2. Do you think someone deserves the blame for the current crisis, and if so, who?
3. What is the Federal Reserve?
1. Do you think Greenspan deserves some of the blame for what is happening now, or do you agree with him that no one could have predicted the impact of the housing troubles? Why?
2. How would you describe your own "ideology"?
3. Should we have free markets, some regulation of markets by the government, or heavy regulation? Explain your reasoning.
4. Do you think the position of Federal Reserve chairman should have as much power as it currently does? Why or why not?
Transcript of this report:
Financial Crisis Glossary Lesson Plan:
Shifting Away From Free Market Ideals, U.S. Government Buys Big Stakes in Banks:
Global Recession Fears Send Markets Tumbling: