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Greenspan Examines Federal Reserve, Mortgage Crunch

In the first half of a two-part conversation, Jim Lehrer talks with former Federal Reserve Chairman Alan Greenspan about the recent actions of the Federal Reserve, the country's mortgage crunch and his new book, "The Age of Turbulence."

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  • GWEN IFILL:

    Now, the first of a two-part conversation with former Federal Reserve Chairman Alan Greenspan. During his 18-plus years at the Fed, Greenspan worked with four presidents, faced financial crises in America and abroad, and made some controversial decisions about economic policy. His new book is "The Age of Turbulence." Jim Lehrer spoke with him late last week.

  • JIM LEHRER:

    Mr. Chairman, welcome.

  • ALAN GREENSPAN, Former Federal Reserve Chairman:

    Thank you.

  • JIM LEHRER:

    "The Age of Turbulence," what does that mean?

  • ALAN GREENSPAN:

    It's a title that I came upon only late in the book after I had gone through a fairly considerable amount of history of my tenure and various different activities. And then, as I began to discuss what has been going on in the 21st century, with the extraordinary changes in globalization, international economics, and, very importantly, the end of the Cold War, and what this type of environment is, is a turbulent financial environment, which ironically is probably, as a consequence of the turbulence, creating a more productive, stable, economic and employment situation.

  • JIM LEHRER:

    Well, speaking of turbulence, of course, we've got this thing going on, the subprime mortgage turbulence or crisis, whatever you want to call it. Looking back, do you think there is something that could have been done on your watch as chairman of the Fed that could have prevented this from happening?

  • ALAN GREENSPAN:

    I don't think so. First of all, the problem that we're dealing with now is an aspect of the — it's one of the — it's a result of human nature, basically the innate characteristics of human nature, in the sense that people, after a period of exuberance…

  • JIM LEHRER:

    There's a magic word for you, exuberance.

  • ALAN GREENSPAN:

    I like that word. I think I'll use it.

  • JIM LEHRER:

    OK.

  • ALAN GREENSPAN:

    But the problem is that we've had a bubble in housing, and the bubble in housing essentially has roots, as I point out in the book, to the end of the cold war, leaving aside all the economics that are involved.

    But the consequence, with respect to the end of the Cold War, was a huge change in the geopolitical structure of the world, where a billion people who have been well-educated, extremely low paid, but behind the Iron Curtain or in centrally planned, quasi-centrally planned societies, started as a consequence of the result of the decline of the — the takedown of the Berlin Wall, which showed an extraordinary amount of economic rune behind the Iron Curtain. And very quietly, with no fanfare, vast amounts of people abandoned central planning.

    And for example, in China, there was a huge move of people from the provinces down into the special enterprise zones in the Pearl River Delta, which created a huge economic boom, which we're all aware of, and those economics essentially, as I describe in some detail in this book, created a very major decline in long-term interest rates around the world. In every major country, housing prices went up very sharply.

  • JIM LEHRER:

    Because interest rates were down, it was easier to buy a house?

  • ALAN GREENSPAN:

    Absolutely.

  • JIM LEHRER:

    And the market boomed.

  • ALAN GREENSPAN:

    And the market boomed.

  • JIM LEHRER:

    It boomed too much?

  • ALAN GREENSPAN:

    Well, yes, I think it did boom too much.

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