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136-582: In 1999, Alan Greenspan identified the role of NBFIs in strengthening an economy, as they provide "multiple alternatives to transform an economy's savings into capital investment which act as backup facilities should the primary form of intermediation fail." Operations of non-bank financial institutions are not typically covered under a country's banking regulations . The term non-bank likely started as non-deposit taking banking institution. However, due to financial regulations adopted from English speaking countries, non-English speaking countries took "non-bank" as

272-529: A ripple effect through the financial system and the economy (as well as any connected economies) as a whole. The foreign ministers of the 10 ASEAN countries believed that the well co-ordinated manipulation of their currencies was a deliberate attempt to destabilize the ASEAN economies . Malaysian Prime Minister Mahathir Mohamad accused George Soros and other currency traders of ruining Malaysia's economy with currency speculation . Soros claims to have been

408-581: A Ph.D. in economics from New York University. His dissertation is not available from the university since it was removed at Greenspan's request in 1987, when he became chairman of the Federal Reserve Board. In April 2008, however, Barron's obtained a copy and notes that it includes "a discussion of soaring housing prices and their effect on consumer spending; it even anticipates a bursting housing bubble". During his economics studies at New York University, Greenspan worked under Eugene Banks,

544-485: A buyer of the ringgit during its fall, having sold it short in 1997. At the 30th ASEAN Ministerial Meeting held in Subang Jaya , Malaysia , the foreign ministers issued a joint declaration on 25 July 1997 expressing serious concern and called for further intensification of ASEAN's cooperation to safeguard and promote ASEAN's interest in this regard. Coincidentally, on that same day, the central bankers of most of

680-562: A corporate director for Aluminum Company of America (Alcoa); Automatic Data Processing ; Capital Cities/ABC, Inc. ; General Foods ; J.P. Morgan & Co. ; Morgan Guaranty Trust Company ; Mobil Corporation ; and the Pittston Company . He was a director of the Council on Foreign Relations foreign policy organization between 1982 and 1988. He also served as a member of the influential Washington-based financial advisory body,

816-404: A democratic society individuals have to make compromises with each other over conflicting ideas of how money should be handled. He said he himself had to make such compromises, because he believes that "we did extremely well" without a central bank and with a gold standard . In a congressional hearing on October 23, 2008, Greenspan admitted that his free-market ideology shunning certain regulations

952-538: A fee-for-service basis. Their services include: improving informational efficiency for the investors and, in the case of brokers, offering a transactions service by which an investor can liquidate existing assets. According to the World Bank , approximately 30% total assets of South Korea's financial system was held in NBFIs as of 1997. In this report, the lack of regulation in this area was claimed to be one reason for

1088-402: A follow-up article in which he defended his ideology as applied to his conceptual and policy framework, which, among other things, prohibited him from exerting real pressure against the burgeoning housing bubble or, in his words, "leaning against the wind". Greenspan argued, "My view of the range of dispersion of outcomes has been shaken, but not my judgment that free competitive markets are by far

1224-579: A further decline in South Korean shares since stock markets were already bearish in November. The Seoul stock exchange fell by 4% on 7 November 1997. On 8 November, it plunged by 7%, its biggest one-day drop to that date. And on 24 November, stocks fell a further 7.2% on fears that the IMF would demand tough reforms. In 1998, Hyundai Motor Company took over Kia Motors. Samsung Motors ' $ 5 billion venture

1360-504: A general loss of demand and confidence throughout the region. Although most of the governments of Asia had seemingly sound fiscal policies , the International Monetary Fund (IMF) stepped in to initiate a $ 40 billion program to stabilize the currencies of South Korea, Thailand, and Indonesia, economies particularly hard hit by the crisis. However, the efforts to stem a global economic crisis did little to stabilize

1496-508: A greater devaluation? This is a relevant tradeoff, but there can be no question that the degree of devaluation in the Asian countries is excessive, both from the viewpoint of the individual countries, and from the viewpoint of the international system. Looking first to the individual country, companies with substantial foreign currency debts, as so many companies in these countries have, stood to suffer far more from… currency (depreciation) than from

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1632-414: A greater variety of "mortgage product alternatives" other than traditional fixed-rate mortgages. Greenspan also praised the rise of the subprime mortgage industry and its tools for assessing credit-worthiness: Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven

1768-425: A high rate of return . As a result, the region's economies received a large inflow of money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore and South Korea experienced high growth rates, of 8–12% GDP, in the late 1980s and early 1990s. This achievement was widely acclaimed by financial institutions including IMF and World Bank , and

1904-560: A high correlation between a financial development and economic growth. Generally, a market-based financial system has better-developed NBFIs than a bank-based system, which is conducive for economic growth.linkages between bankers and brokers. A multi-faceted financial system that includes non-bank financial institutions can protect economies from financial shocks and enable speedy recovery when these shocks happen. NBFIs provide “multiple alternatives to transform an economy's savings into capital investment, [which] serve as backup facilities should

2040-511: A highly leveraged economic climate, and pushed up asset prices to an unsustainable level, particularly those in non-productive sectors of the economy such as real-estate. These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations. The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a credit crunch and further bankruptcies. In addition, as foreign investors attempted to withdraw their money,

2176-407: A large number of Indonesian corporations had been borrowing in U.S. dollars. This practice had worked well for these corporations during the preceding years, as the rupiah had strengthened respective to the dollar; their effective levels of debt and financing costs had decreased as the local currency's value rose. In July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened

2312-462: A largely uncontrolled manner to certain people only – not necessarily the best suited or most efficient, but those closest to the centers of power. Weak corporate governance also led to inefficient investment and declining profitability. Until 1999, Asia attracted almost half of the total capital inflow into developing countries . The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for

2448-764: A managing director at the Wall Street investment bank Brown Brothers Harriman , in the firm's equity research department. From 1948 to 1953, Greenspan worked as an analyst at the National Industrial Conference Board (currently known as the Conference Board ), a business- and industry-oriented think tank in New York City. Before he was appointed chairman of the Federal Reserve, from 1955 to 1987, Greenspan

2584-401: A memoir titled The Age of Turbulence: Adventures in a New World , published September 17, 2007. Greenspan says that he wrote the book in longhand mostly while soaking in the bathtub, a habit he regularly employs since injuring his back in 1971. Greenspan discusses in his book, among other things, his history in government and economics, capitalism and other economic systems, current issues in

2720-496: A number of critical responses from forum contributors, who, finding causation between Greenspan's policies and the discontinuities in financial markets that followed, criticized Greenspan mainly for what many believed to be his unbalanced and immovable ideological suppositions about global capitalism and free competitive markets. Notable critics included J. Bradford DeLong , Paul Krugman , Alice Rivlin , Michael Hudson , and Willem Buiter . Greenspan responded to his critics in

2856-471: A number of instances where insurance companies and banks have merged thus creating insurance companies that do have banking licenses. Contractual savings institutions run investment funds like pension and mutual funds . They give individuals the opportunity to invest in funds as fiduciaries rather than as principals. Funds pool resources from individuals and firms into various financial instruments such as equity and debt . The individual holds equity in

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2992-1104: A payment institution in any EU country of their URL choice (where they are established) and then passport their payment services into other states across the EU. Based on their liability structure, NBFCs have been divided into two categories. NBFCs-D are subject to requirements of capital adequacy , liquid assets maintenance, exposure norms (including restrictions on exposure to investments in land, building and unquoted shares), asset and liability management (ALM) discipline and reporting requirements. In contrast, until 2006, NBFCs-ND were subject to minimal regulation. Since April 1, 2007, non-deposit taking NBFCs with assets over €1B are classified as systemically important. Prudential regulations, such as capital adequacy requirements and exposure norms with reporting requirements, apply to these companies. The ALM reporting and disclosure norms have also been made applicable to them at different points in time. Depending upon their nature of activities, non-banking finance companies can be classified into

3128-492: A powerful stabilizing force over the past two years of economic distress by facilitating the extraction of some of the equity that homeowners have built up over the years". According to some, however, Greenspan's policies of adjusting interest rates to historic lows contributed to a housing bubble in the United States. The Federal Reserve acknowledged the connection between lower interest rates, higher home values, and

3264-473: A result of the crisis. Following the 1997 Asian financial crisis, income in the northeast, the poorest part of the country, rose by 46 percent from 1998 to 2006. Nationwide poverty fell from 21.3 to 11.3 percent. Thailand's Gini coefficient , a measure of income inequality , fell from .525 in 2000 to .499 in 2004 (it had risen from 1996 to 2000) versus 1997 Asian financial crisis. By 2001, Thailand's economy had recovered. The increasing tax revenues allowed

3400-556: A result of the crisis. In May 1997, the Bangko Sentral ng Pilipinas , the country's central bank, raised interest rates by 1.75 percentage points and again by 2 points on 19 June. Thailand triggered the crisis on 2 July and on 3 July, the Bangko Sentral intervened to defend the peso , raising the overnight rate from 15% to 32% at the onset of the Asian crisis in mid-July 1997. The peso dropped from 26 pesos per dollar at

3536-483: A series of bailouts ("rescue packages") for the most-affected economies to enable them to avoid default , tying the packages to currency, banking and financial system reforms. Due to IMF's involvement in the financial crisis, the term IMF Crisis became a way to refer to the Asian Financial Crisis in countries that were affected. The IMF's support was conditional on a series of economic reforms,

3672-496: A single word. This is probably because in English speaking countries the term 'bank' is generally accepted as equivalent to 'financial institution' but outside English speaking countries, especially developing countries, see the term bank as deposit taking institutions only, and every other financial service providers as something that must not be termed a bank. This is possibly due to language differences. But also importantly, this

3808-473: A state of shocked disbelief." Referring to his free-market ideology, Greenspan said: "I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact." When Representative Henry Waxman (D-CA) pressed him to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said. "Absolutely, precisely", Greenspan replied. "You know, that's precisely

3944-494: A temporary rise in domestic interest rates…. Thus, on macroeconomics… monetary policy has to be kept tight to restore confidence in the currency.... From the then IMF managing director Michel Camdessus : To reverse (currency depreciation), countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations. From 1985 to 1996, Thailand's economy grew at an average of over 9% per year,

4080-522: A weak dollar. By late 2004, the price of gold was higher than its 12-year moving average. Greenspan advised senior members of the George W. Bush administration to depose Saddam Hussein for the sake of the oil markets. He believed that even a moderate disruption to the flow of oil could translate into high oil prices, which could lead to "chaos" in the global economy and bring the industrial world "to its knees". He feared that Saddam could seize control of

4216-424: Is a longer-term contract, which terminates at the death of the insured. Both types of insurance, life and general, are available to all sectors of the community. Although insurance companies do not have banking licenses, in most countries insurance has a separate form of regulation specific to the insurance business and may well be covered by the same financial regulator that also covers banks. There have also been

Non-bank financial institution - Misplaced Pages Continue

4352-519: Is likely due to developing countries in the past having adopted the western banking system much later than the West. As developing countries adopted, or learned the financial system from English speaking countries, there was a higher focus in regulatory terms such as bank and non-bank, while not understanding that non-bank is actually a shortened version of non-deposit taking bank. This is in contrast to English speaking countries as in English speaking countries

4488-399: Is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously", and suggested that financial markets need to be more regulated. His critics, led by Steve Forbes , attributed the rapid rise in commodity prices and gold to Greenspan's loose monetary policy, which Forbes believed had caused excessive asset inflation and

4624-647: The 1987 stock market crash that the Fed "affirmed today its readiness to serve as a source of liquidity to support the economic and financial system". Although the Federal Reserve followed its announcement with monetary policy actions, which became known as the Greenspan put , George H. W. Bush attributed his re-election loss to a sluggish response. Democratic president Bill Clinton reappointed Greenspan, and consulted him on economic matters. Greenspan lent support to Clinton's 1993 deficit reduction program. Greenspan

4760-878: The 1997 Asian financial crisis . As of 2019, China's banking system is estimated to hold the equivalent of $ 8.3 trillion USD in assets (or approximately 20% of total bank assets) largely in the form of loans wrapped by NBFI investments. The European Commission's Payment Services Directive (PSD) regulates payment services and payment service providers throughout the European Union (EU) and European Economic Area . The PSD describes which types of organisation can provide payment services in Europe: credit institutions (i.e. banks), certain authorities (e.g. central banks, government bodies), electronic money institutions (EMI) and payment institutions. Organisations that are not credit institutions or EMI can apply for authorisation to be

4896-513: The Federal Open Market Committee voted to reduce the federal funds rate from 3.5% to 3.0%. Then, after the accounting scandals of 2002, the Fed dropped the federal funds rate from then current 1.25% to 1.00%. Greenspan stated that this drop in rates would have the effect of leading to a surge in home sales and refinancing, adding that "Besides sustaining the demand for new construction, mortgage markets have also been

5032-596: The Federal Reserve by President Ronald Reagan in August 1987, Greenspan was reappointed at successive four-year intervals until retiring on January 31, 2006, after the second-longest tenure in the position, behind only William McChesney Martin . President George W. Bush appointed Ben Bernanke as his successor. Greenspan came to the Federal Reserve Board from a consulting career. Although he

5168-578: The Group of Thirty in 1984. On June 2, 1987, President Ronald Reagan nominated Greenspan as a successor to Paul Volcker , as chairman of the Board of Governors of the Federal Reserve, and the Senate confirmed him on August 11, 1987. Investor, author and commentator Jim Rogers has said that Greenspan lobbied to get this chairmanship. Two months after his confirmation, Greenspan said immediately following

5304-577: The H-1B visa program, telling a U.S. Senate subcommittee that the visa quota is "far too small to meet the need" and saying that it protects U.S. workers from global competition, creating a "privileged elite". Testifying on immigration reform before the Subcommittee on Immigration, Border Security and Citizenship, he said more skilled immigration was needed "as the economy copes with the forthcoming retirement wave of skilled baby boomers". Greenspan wrote

5440-584: The Jakarta Stock Exchange touched a historic low in September. Moody's eventually downgraded Indonesia's long-term debt to " junk bond ". Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. Companies that had borrowed in dollars had to face the higher costs imposed upon them by

5576-615: The Latin American debt crisis . The effects of the SAPs were mixed and their impact controversial. Critics, however, noted the contractionary nature of these policies, arguing that in a recession , the traditional Keynesian response was to increase government spending, prop up major companies, and lower interest rates. The reasoning was that by stimulating the economy and staving off recession , governments could restore confidence while preventing economic loss . They pointed out that

Non-bank financial institution - Misplaced Pages Continue

5712-428: The exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors) and intervened in the exchange market, buying up any excess domestic currency at

5848-425: The financial crisis of 2007–2008 , were entities that focused NBFI supervision on pension funds and insurance companies, but were largely overlooked by regulators. Because these NBFIs operate without a banking license, in some countries their activities are largely unsupervised, both by government regulators and credit reporting agencies. Thus, a large NBFI market share of total financial assets can easily destabilize

5984-455: The fixed exchange rate with foreign reserves . Neither of these policy responses could be sustained for long, as several countries had insufficient levels of foreign exchange reserves. Very high interest rates, which can be extremely damaging to a healthy economy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. When it became clear that

6120-472: The " structural adjustment package" (SAP). The SAPs called on crisis-struck nations to reduce government spending and deficits, allow insolvent banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations' fiscal solvency , penalize insolvent companies, and protect currency values. Above all, it was stipulated that IMF-funded capital had to be administered rationally in

6256-432: The "General Agreement to Borrow" and the "Emergency Finance Mechanism". The scope and the severity of the collapses led to an urgent need for outside intervention. Since the countries melting down were among the richest in their region, and in the world, and since hundreds of billions of dollars were at stake, any response to the crisis was likely to be cooperative and international. The International Monetary Fund created

6392-472: The 1990s after the implementation of a number of export-oriented reforms. Other economists dispute China's impact, noting that both ASEAN and China experienced simultaneous rapid export growth in the early 1990s. Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of credit that became available generated

6528-498: The 1990s, hot money flew into the Southeast Asia region through financial hubs , especially Hong Kong. The investors were often ignorant of the actual fundamentals or risk profiles of the respective economies, and once the crisis gripped the region, the political uncertainty regarding the future of Hong Kong as an Asian financial centre led some investors to withdraw from Asia altogether. This shrink in investments only worsened

6664-632: The Fed, Greenspan formed an economic consulting firm, Greenspan Associates LLC. He also accepted an honorary (unpaid) position at HM Treasury in the United Kingdom. On February 26, 2007, Greenspan forecast a possible recession in the United States before or in early 2008. Stabilizing corporate profits are said to have influenced his comments. The following day, the Dow Jones Industrial Average decreased by 416 points, losing 3.3% of its value. In May 2007, Greenspan

6800-557: The IMF, the reserves of Thailand and South Korea were perilously low, and the Indonesian Rupiah was excessively depreciated. Thus, the first order of business was... to restore confidence in the currency. To achieve this, countries have to make it more attractive to hold domestic currency, which in turn, requires increasing interest rates temporarily, even if higher interest costs complicate the situation of weak banks and corporations... Why not operate with lower interest rates and

6936-528: The People's Republic of China for its refusal to let the yuan rise , suggesting instead that any American workers displaced by Chinese trade could be compensated through unemployment insurance and retraining programs. Greenspan's term as a member of the board ended on January 31, 2006, and Ben Bernanke was confirmed as his successor. As chairman of the board, Greenspan did not give any broadcast interviews from 1987 through 2005. Immediately after leaving

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7072-614: The Philippines dropped to virtually zero. Only Singapore proved relatively insulated from the shock, but nevertheless suffered serious hits in passing, mainly due to its status as a major financial hub and its geographical proximity to Malaysia and Indonesia. By 1999, however, analysts saw signs that the economies of Asia were beginning to recover. After the crisis, economies in East and Southeast Asia worked together toward financial stability and better financial supervision. The causes of

7208-560: The Straits of Hormuz and restrict the transport of oil through them. In a 2007 interview, he said, "people do not realize in this country, for example, how tenuous our ties to international energy are. That is, we on a daily basis require continuous flow. If that flow is shut off, it causes catastrophic effects in the industrial world. And it's that which made him [Saddam] far more important to get out than bin Laden." On May 18, 2004, Greenspan

7344-408: The U.S. government had pursued expansionary policies, such as lowering interest rates, increasing government spending, and cutting taxes, when the United States itself entered a recession in 2001, and arguably the same in the fiscal and monetary policies during the 2008–2009 Global Financial Crisis. Many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down

7480-399: The U.S. primary and secondary education systems. He asserts this would narrow the inequality between the minority of high-income earners and most workers whose wages have not grown in proportion with globalization and the nation's GDP growth. Ayn Rand Institute Other In the early 1950s, Greenspan began an association with novelist and Objectivist philosopher Ayn Rand . Greenspan

7616-595: The USD–Baht currency peg, and the Thai government was eventually forced to float the Baht, on 2 July 1997, allowing the value of the Baht to be set by the currency market. This caused a chain reaction of events, eventually culminating into a region-wide crisis. Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in

7752-474: The United States a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At

7888-482: The United States is likely to be judged as the most wrenching since the end of World War II . In it he argued: "We will never be able to anticipate all discontinuities in financial markets." He concluded: "It is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition." The article attracted

8024-583: The affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the "New Arrangement to Borrow" operational. A year earlier, the finance ministers of these same countries had attended the 3rd APEC finance ministers meeting in Kyoto , Japan, on 17 March 1996, and according to that joint declaration, they had been unable to double the amounts available under

8160-480: The banks lend to unfit borrowers. He refused, trusting the market to weed out bad credit risks. It did not." In congressional testimony on October 23, 2008, Greenspan finally conceded error on regulation. The New York Times wrote, "a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending ... Mr. Greenspan refused to accept blame for

8296-469: The borrower paid during the first few years of the mortgage. In 2008, Greenspan expressed great frustration that the February 23 speech was used to criticize him on ARMs and the subprime mortgage crisis , and stated that he had made countervailing comments eight days after it that praised traditional fixed-rate mortgages. In that speech, Greenspan had suggested that lenders should offer to home purchasers

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8432-489: The bursting of the dot-com bubble . According to Nobel laureate Paul Krugman , however, "he didn't raise interest rates to curb the market's enthusiasm; he didn't even seek to impose margin requirements on stock market investors. Instead, he waited until the bubble burst, as it did in 2000, then tried to clean up the mess afterward". E. Ray Canterbery agrees with Krugman's criticism. In January 2001, Greenspan, in support of President Bush's proposed tax decrease, stated that

8568-597: The causes of prosperity and depression, the consequences of government intervention, and the fallacies of collectivist economics. Rand stood beside him at his 1974 swearing-in as chairman of the Council of Economic Advisers . Greenspan and Rand remained friends until her death in 1982. Greenspan has come under criticism from Harry Binswanger , who believes his actions while at work for the Federal Reserve and his publicly expressed opinions on other issues show abandonment of Objectivist and free market principles. When questioned in relation to this, however, he has said that in

8704-401: The chain objectives of tightened money supply , discouraged currency speculation , stabilized exchange rate, curbed currency depreciation, and ultimately contained inflation . In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as follows: From then IMF First Deputy managing director, Stanley Fischer in 1998: When their governments "approached

8840-481: The companies—nearly a quarter of the home-mortgage market—posed significant risks to the nation's financial system should either company face significant problems." Despite this, Greenspan still claims to be a firm believer in free markets, although in his 2007 biography he wrote, "History has not dealt kindly with the aftermath of protracted periods of low risk premiums " as seen before the credit crisis of 2008. In 2009, Robert Reich wrote that "Greenspan's worst move

8976-477: The country to balance its budget and repay its debts to the IMF in 2003, four years ahead of schedule. The Thai baht continued to appreciate to 29 Baht to the U.S. dollar in October 2010. In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a trade surplus of more than $ 900 million, huge foreign exchange reserves of more than $ 20 billion, and a good banking sector. However,

9112-624: The country, many factors arising from all aspects, including sports broadcasting on Indonesian television, including: Additionally, the Indonesian motorcycle Grand Prix , which was held at Sentul , was dropped from the 1998 Superbike and MotoGP calendars. World Rally Championship also dropped the Rally Indonesia from their 1998 calendar . The banking sector was burdened with non-performing loans as its large corporations were funding aggressive expansions. During that time, there

9248-858: The countryside and 600,000 foreign workers being sent back to their home countries. The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the U.S. dollar in January 1998. The Thai stock market dropped 75%. Finance One, the largest Thai finance company until then, collapsed. On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $ 17 billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August 1997, another bailout package of $ 2.9 billion. Poverty and inequality increased while employment, wages and social welfare all declined as

9384-494: The crisis but acknowledged that his belief in deregulation had been shaken". Although many Republican lawmakers tried to blame the housing bubble on Fannie Mae and Freddie Mac, Greenspan placed far more blame on Wall Street for bundling subprime mortgages into securities. In March 2008, Greenspan wrote an article for the Financial Times ' Economists' Forum in which he said that the 2007–2008 financial crisis in

9520-412: The crisis spread, other Southeast Asian countries and later Japan and South Korea saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt . Foreign debt-to-GDP ratios rose from 100% to 167% in the four large Association of Southeast Asian Nations (ASEAN) economies in 1993–96, then shot up beyond 180% during the worst of the crisis. In South Korea,

9656-426: The current interest in the market. The Fed's own funds rate was at a then all-time-low of 1%. A few months after his recommendation, Greenspan began raising interest rates, in a series of rate hikes that would bring the funds rate to 5.25% about two years later. A triggering factor in the 2007 subprime mortgage financial crisis is believed to be the many subprime ARMs that reset at much higher interest rates than what

9792-482: The debacle are many and disputed. Thailand's economy developed into an economic bubble fueled by hot money . More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia and Indonesia, which had the added complication of what was called " crony capitalism ". The short-term capital flow was expensive and often highly conditioned for quick profit . Development money went in

9928-421: The desired results. Insurance companies underwrite economic risks associated with illness, death, damage and other risks of loss. In return to collecting an insurance premium, insurance companies provide a contingent promise of economic protection in the case of loss. There are two main types of insurance companies: general insurance and life insurance. General insurance tends to be short-term, while life insurance

10064-698: The domestic situation in Indonesia. After 30 years in power, Indonesian President Suharto was forced to step down on 21 May 1998 in the wake of widespread rioting that followed sharp price increases caused by a drastic devaluation of the rupiah . The effects of the crisis lingered through 1998, where many important stocks fell in Wall Street as a result of a dip in the values of the currencies of Russia and Latin American countries that weakened those countries' "demand for U.S. exports." In 1998, growth in

10200-691: The economic environment. The devaluation of the Chinese renminbi and the Japanese yen , subsequent to the latter's strengthening due to the Plaza Accord of 1985, the raising of U.S. interest rates which led to a strong U.S. dollar, and the sharp decline in semiconductor prices, all adversely affected their growth. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation . This made

10336-567: The entire financial system. A prime example would be the 1997 Asian financial crisis , where a lack of NBFI regulation fueled a credit bubble and asset overheating. When the asset prices collapsed and loan defaults skyrocketed, the resulting credit crunch led to the 1997 Asian financial crisis that left most of Southeast Asia and Japan with devalued currencies and a rise in private debt. Due to increased competition, established lenders are often reluctant to include NBFIs into existing credit-information sharing arrangements. Additionally, NBFIs often lack

10472-492: The excesses of the financial system were noted, (he and others) called for self-regulation—an oxymoron ". Greenspan, according to The New York Times , says he himself is blameless. On April 6, 2005, Greenspan called for a substantial increase in the regulation of Fannie Mae and Freddie Mac : "Appearing before the Senate Banking Committee , the Fed chairman, Alan Greenspan, said the enormous portfolios of

10608-592: The federal surplus could accommodate a significant tax cut while paying down the national debt. In autumn 2001, as a decisive reaction to the September 11 attacks and various corporate scandals which undermined the economy, the Greenspan-led Federal Reserve initiated a series of interest cuts that brought down the federal funds rate to 1% in 2004. While presenting the Federal Reserve's Monetary Policy Report in July 2002, he said that "It

10744-504: The financial conditions in Asia (subsequently leading to the depreciation of the Thai baht on 2 July 1997). Several case studies on the topic of the application of network analysis of a financial system help to explain the interconnectivity of financial markets , as well as the significance of the robustness of hubs (or main nodes). Any negative externalities in the hubs creates

10880-607: The financial services industry throughout the history of our country ... With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. ... Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of

11016-593: The following categories, also known as notified entities: In 1996, the NBFI sector accounted for approximately $ 200 billion in transactions in the United States . Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He worked as a private adviser and provided consulting for firms through his company, Greenspan Associates LLC. First nominated to

11152-419: The fund itself, rather directly in the investments. The two main types of mutual funds are open-end and closed-end funds . Open-end funds generate new investments by allowing the public to purchase new shares at any time, and shareholders can liquidate their holding by selling the shares back to the open-end fund at the net asset value. Closed-end funds issue a fixed number of shares in an IPO . In this case,

11288-497: The future, with no favored parties receiving funds by preference. In at least one of the affected countries the restrictions on foreign ownership were greatly reduced. There were to be adequate government controls set up to supervise all financial activities, ones that were to be independent, in theory, of private interest. Insolvent institutions had to be closed, and insolvency itself had to be clearly defined. In addition, financial systems were to become "transparent", that is, provide

11424-462: The general public, as well as regulatory institutions, refer to financial institutions as simply a "bank" in many instances. NBFIs supplement banks by providing the infrastructure to allocate surplus resources to individuals and companies with deficits. Additionally, NBFIs also introduces competition in the provision of financial services. While banks may offer a set of financial services as a packaged deal, NBFIs unbundle and tailor these service to meet

11560-800: The global economy, and future issues that face the global economy. In the book, Greenspan criticizes President George W. Bush, Vice President Dick Cheney , and the Republican-controlled Congress for abandoning the Republican Party 's principles on spending and deficits. Greenspan's criticisms of President Bush include his refusal to veto spending bills, sending the country into increasingly deep deficits, and for "putting political imperatives ahead of sound economic policies". Greenspan writes, "They swapped principle for power. They ended up with neither. They deserved to lose [the 2006 election ]". He praised Bill Clinton above all

11696-404: The highest economic growth rate of any country at the time. Inflation was kept reasonably low within a range of 3.4–5.7%. The baht was pegged at 25 to the U.S. dollar. On 14 and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht. However, Thailand lacked the foreign reserves to support

11832-621: The housing bubble itself. In 2004, Businessweek magazine analysts argued: "It was the Federal Reserve-engineered decline in rates that inflated the housing bubble ... the most troublesome aspect of the price runup is that many recent buyers are squeezing into houses that they can barely afford by taking advantage of the lower rates available from adjustable-rate mortgages. That leaves them fully exposed to rising rates." In September 2008, Joseph Stiglitz stated that Greenspan "didn't really believe in regulation; when

11968-431: The housing bubble was "fundamentally engendered by the decline in real long-term interest rates", though he also claims that long-term interest rates are beyond the control of central banks because "the market value of global long-term securities is approaching $ 100 trillion" and thus these and other asset markets are large enough that they "now swamp the resources of central banks". After the September 11, 2001 attacks ,

12104-471: The housing bubble was not a result of low-interest short-term rates but rather a worldwide phenomenon caused by the progressive decline in long-term interest rates – a direct consequence of the relationship between high savings rates in the developing world and its inverse in the developed world. Greenspan was born in the Washington Heights area of New York City. His father, Herbert Greenspan,

12240-423: The increased liquidity the higher home values bring to the overall economy: "Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission." In a February 23, 2004, speech, Greenspan suggested that more homeowners should consider taking out adjustable-rate mortgages (ARMs) where the interest rate adjusts itself to

12376-426: The influence has had pernicious effects on Greenspan's monetary policy. In the wake of the subprime mortgage and credit crisis in 2007, Greenspan stated that there was a bubble in the U.S. housing market, warning in 2007 of "large double digit declines" in home values "larger than most people expect". Greenspan also noted, however, "I really didn't get it until very late in 2005 and 2006." Greenspan stated that

12512-467: The international financial community. Later that year, in July, South Korea's third-largest car maker, Kia Motors , asked for emergency loans. The domino effect of collapsing large South Korean companies drove the interest rates up and international investors away. In the wake of the Asian market downturn, Moody's lowered the credit rating of South Korea from A1 to A3, on 28 November 1997, and downgraded again to B2 on 11 December. That contributed to

12648-545: The investor's ability to access their investments until a certain date. In return, pension funds are granted large tax breaks in order to incentivize the working population to set aside a portion of their current income for a later date after they exit the labor force (retirement income). Market makers are broker-dealer institutions that quote a buy and sell price and facilitate transactions for financial assets. Such assets include equities, government and corporate debt, derivatives, and foreign currencies. After receiving an order,

12784-448: The kind of financial information used in the West to make financial decisions. As countries fell into crisis, many local businesses and governments that had taken out loans in US dollars, which suddenly became much more expensive relative to the local currency which formed their earned income, found themselves unable to pay their creditors. The dynamics of the situation were similar to that of

12920-597: The last several years as venture capital companies, retail and industrial companies have entered the lending business. Non-bank institutions also frequently support investments in property and prepare feasibility, market or industry studies for companies. However they are typically not allowed to take deposits from the general public and have to find other means of funding their operations such as issuing debt instruments. NBFCs typically don't provide cheque books , saving accounts or current accounts . It may only takes fixed deposit or time deposits. Some research suggests

13056-678: The late 2000s credit crisis. Greenspan was not alone in his opposition to derivatives regulation. In a 1999 government report that was a key driver in the passage of the Commodity Futures Modernization Act of 2000 —legislation that clarified that most over-the-counter derivatives were outside the regulatory authority of any government agency—Greenspan was joined by Treasury Secretary Lawrence Summers , Securities and Exchange Commission Chairman Arthur Levitt , and Commodity Futures Trading Commission Chairman William Ranier in concluding that "under many circumstances,

13192-722: The market maker immediately sells from its inventory or makes a purchase to offset the loss in inventory. A major contribution of the market makers is improving the liquidity of financial assets in the market. They provide a limited range of financial services to a targeted sector. For example, real estate financiers channel capital to prospective homeowners, leasing companies provide financing for equipment and payday lending companies that provide short-term loans to individuals that are underbanked or have limited resources, like Uganda Development Bank . Financial service providers include brokers (both securities and mortgage), management consultants, and financial advisors, and they operate on

13328-824: The needs of specific clients. Additionally, individual NBFIs may specialize in one particular sector and develop an informational advantage. Through the process of unbundling, targeting, and specializing, NBFIs enhances competition within the financial services industry. Non-bank financial companies (NBFCs) offer most sorts of banking services, such as loans and credit facilities, private education funding, retirement planning, trading in money markets , underwriting stocks and shares, TFCs(Term Finance Certificate) and other obligations. These institutions also provide wealth management such as managing portfolios of stocks and shares, discounting services e.g. discounting of instruments and advice on merger and acquisition activities. The number of non-banking financial companies has expanded greatly in

13464-487: The number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s. The subprime mortgage industry collapsed in March 2007, with many of the largest lenders filing for bankruptcy protection in the face of spiraling foreclosure rates. For these reasons, Greenspan has been criticized for his role in the rise of the housing bubble and the subsequent problems in the mortgage industry, as well as "engineering"

13600-576: The origins of the economic crisis claims that Greenspan vehemently opposed any regulation of derivatives , and actively sought to undermine the office of the Commodity Futures Trading Commission when the commission sought to initiate regulation of derivatives. Meanwhile, Greenspan recommended improving mark-to-market regulations to avoid having derivatives or other complex assets marked to a distressed or illiquid market during times of material adverse conditions seen during

13736-441: The other presidents for whom he'd worked for his "consistent, disciplined focus on long-term economic growth". Although he respected what he saw as Richard Nixon 's immense intelligence, Greenspan found him to be "sadly paranoid, misanthropic and cynical". He said of Gerald Ford that he "was as close to normal as you get in a president, but he was never elected". Regarding future U.S. economic policy, Greenspan recommends improving

13872-443: The path of "fast-track capitalism", meaning liberalization of the financial sector (elimination of restrictions on capital flows), maintenance of high domestic interest rates to attract portfolio investment and bank capital, and pegging of the national currency to the dollar to reassure foreign investors against currency risk. The conventional high-interest-rate economic strategy is normally employed by monetary authorities to attain

14008-494: The practice known as the " Greenspan put ", were a leading cause of the dot-com bubble and subprime mortgage crisis (the latter occurring within a year of his leaving the Fed), which, said The Wall Street Journal , "tarnished his reputation". Yale economist Robert Shiller argues that "once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed". Greenspan has argued that

14144-423: The primary form of intermediation fail.” However, in the absence of effective financial regulations , non-bank financial institutions can actually exacerbate the fragility of the financial system. Since not all NBFIs are heavily regulated, the shadow banking system constituted by these institutions could wreak potential instability. In particular, CIVs, hedge funds, and structured investment vehicles , up until

14280-537: The program, 787 insolvent financial institutions were closed or merged by June 2003. The number of financial institutions in which foreign investors invested has increased rapidly. Examples include New Bridge Capital's takeover of Korea First Bank. The South Korean won , meanwhile, weakened to more than 1,700 per U.S. dollar from around 800, but later managed to recover. However, like the chaebol, South Korea's government did not escape unscathed. Its national debt -to-GDP ratio more than doubled (approximately 13% to 30%) as

14416-464: The rate was almost exactly 8,000 to 1 U.S. dollar. Indonesia lost 13.5% of its GDP that year. In February 1998, President Suharto sacked the incumbent Bank Indonesia governor, J. Soedradjad Djiwandono , but this proved insufficient. Amidst widespread rioting in May 1998 , Suharto resigned under public pressure and Vice President B. J. Habibie replaced him. As a result of the financial crisis that hit

14552-619: The ratios rose from 13% to 21% and then as high as 40%, while the other northern newly industrialized countries fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise. South Korea , Indonesia and Thailand were the countries most affected by the crisis. Hong Kong , Laos , Malaysia and the Philippines were also hurt by the slump. Brunei , mainland China , Japan , Singapore , Taiwan , and Vietnam were less affected, although all suffered from

14688-398: The reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well." Greenspan admitted fault in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected. 1997 Asian Financial Crisis The 1997 Asian financial crisis

14824-422: The remarkable resilience of the banking system, which had recently shrugged off severe shocks to the economy and the financial system. At the same time, I indicated some concerns about the risks associated with derivatives, including the risks posed by concentration in certain derivatives markets, notably the over-the-counter (OTC) markets for U.S. dollar interest rate options." Greenspan opposed tariffs against

14960-405: The role of asymmetric information in the financial markets that led to a " herd mentality " among investors that magnified a small risk in the real economy. The crisis has thus attracted attention from behavioral economists interested in market psychology . Another possible cause of the sudden risk shock may also be attributable to the handover of Hong Kong sovereignty on 1 July 1997 . During

15096-408: The role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs pointed to strict monetary and contractionary fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while Frederic Mishkin points to

15232-497: The rupiah currency trading band from 8% to 12%. As a result, the rupiah suddenly came under severe attack in August. Therefore, on the 14th of the month, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement. The rupiah dropped further due to the shift. The IMF came forward with a rescue package of $ 23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and

15368-458: The rupiah's decline, and many reacted by buying dollars through selling rupiah, undermining the value of the latter further. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 U.S. dollar. The rate plunged to over 11,000 rupiah to 1 U.S. dollar on 9 January 1998, with spot rates over 14,000 during 23–26 January and trading again over 14,000 for about six weeks during June–July 1998. On 31 December 1998,

15504-448: The same time, Southeast Asia's export growth slowed dramatically in the spring of 1996, deteriorating their current account position. Some economists have advanced the growing exports of China as a factor contributing to ASEAN nations' export growth slowdown, though these economists maintain the main cause of their crises was excessive real estate speculation. China had begun to compete effectively with other Asian exporters particularly in

15640-479: The shareholders capitalize on the value of their assets by selling their shares in a stock exchange . Mutual funds are usually distinguished by the nature of their investments. For example, some funds specialize in high risk, high return investments, while others focus on tax-exempt securities . There are also mutual funds specializing in speculative trading (i.e. hedge funds ), a specific sector, or cross-border investments. Pension funds are mutual funds that limit

15776-406: The technological capabilities necessary to participate in information sharing networks. In general, NBFIs also contribute less information to credit-reporting agencies than do banks. For continual growth and sustenance of NBFCs, it is important to have a regulation around them while maintaining their innovativeness. An introduction of regulatory sandbox in different ecosystem will help them achieve

15912-411: The terms of their agreement, he was not to advise any other hedge fund while working for Paulson. In 2007, Paulson had foreseen the collapse of the sub-prime housing market and hired Goldman Sachs to package their sub-prime holdings into derivatives and sell them. Some economic commentators blamed this collapse on Greenspan's policies while at the Fed. On April 30, 2009, Greenspan offered a defense of

16048-466: The tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to float . The resulting depreciated value of those currencies meant that foreign currency-denominated liabilities grew substantially in domestic currency terms, causing more bankruptcies and further deepening the crisis. Other economists, including Joseph Stiglitz and Jeffrey Sachs , have downplayed

16184-497: The trading of financial derivatives by eligible swap participants should be excluded from the CEA" ( Commodity Exchange Act ). Other government agencies also supported that view. In Congressional testimony on October 23, 2008, Greenspan acknowledged that he was "partially" wrong in opposing regulation and stated "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity—myself especially—are in

16320-649: The unrivaled way to organize economies". He concluded: "We have tried regulation ranging from heavy to central planning. None meaningfully worked. Do we wish to retest the evidence?" Financial Times associate editor and chief economics commentator Martin Wolf defended Greenspan primarily as a scapegoat for the market turmoil. Several notable contributors in defense of Greenspan included Stephen S. Roach , Allan Meltzer , and Robert Brusca. However, an October 15, 2008, article in The Washington Post analyzing

16456-783: Was John Kemeny . He played clarinet and saxophone along with Stan Getz . He further studied clarinet at the Juilliard School from 1943 to 1944. Among his bandmates in the Woody Herman band was Leonard Garment , Richard Nixon 's special counsel . In 1945, Greenspan attended New York University's Stern School of Business , where he earned a B.A. degree in economics summa cum laude in 1948 and an M.A. degree in economics in 1950. At Columbia University , he pursued advanced economic studies under Arthur Burns but withdrew because of his increasing work demand at Townsend-Greenspan & Company. In 1977, Greenspan obtained

16592-574: Was a haste to build great conglomerates to compete on the world stage. Many businesses ultimately failed to ensure returns and profitability. The chaebol , South Korean conglomerates, simply absorbed more and more capital investment. Eventually, excess debt led to major failures and takeovers. Amongst other stimuli, the crisis resulted in the bankruptcy of major Korean companies, provoking not only corporations, but also government officials towards corruption. The Hanbo scandal of early 1997 exposed South Korea's economic weaknesses and corruption problems to

16728-475: Was a period of financial crisis that gripped much of East and Southeast Asia during the late 1990s. The crisis began in Thailand in July 1997 before spreading to several other countries with a ripple effect, raising fears of a worldwide economic meltdown due to financial contagion . However, the recovery in 1998–1999 was rapid, and worries of a meltdown quickly subsided. Originating in Thailand, where it

16864-524: Was being written. During the 1950s and 1960s Greenspan was a proponent of Objectivism, writing articles for Objectivist newsletters and contributing several essays for Rand's 1966 book Capitalism: The Unknown Ideal including an essay supporting the gold standard . During the 1960s Greenspan offered a ten-lecture course, "The Economics of a Free Society", under the auspices of the Nathaniel Branden Institute . The course highlighted

17000-423: Was chairman and president of Townsend-Greenspan & Co., Inc., an economics consulting firm in New York City. His 32-year stint there was interrupted only from 1974 to 1977, when he served as chairman of the Council of Economic Advisers , under President Gerald Ford . In mid-1968, Greenspan agreed to serve as Richard Nixon's coordinator on domestic policy in the nomination campaign. Greenspan has also served as

17136-505: Was dissolved due to the crisis, and eventually Daewoo Motors was sold to the American company General Motors (GM). The International Monetary Fund (IMF) provided US$ 58.4 billion as a bailout package. In return, Korea was required to take restructuring measures. The ceiling on foreign investment in Korean companies was raised from 26 percent to 100 percent. In addition, the Korean government started financial sector reform program. Under

17272-477: Was flawed. When asked about free markets and Rand's ideas, however, Greenspan clarified his stance on laissez faire capitalism and asserted that in a democratic society there could be no better alternative. He stated that the errors that were made stemmed not from the principle, but from the application of competitive markets in "assuming what the nature of risks would be". E. Ray Canterbery has chronicled Greenspan's relationship with Rand, and has concluded that

17408-433: Was fundamentally a monetarist and Austrian Economist in orientation on the economy, and his monetary policy decisions largely followed standard Taylor rule prescriptions (see Taylor 1993 and 1999). Greenspan also played a key role in organizing the U.S. bailout of Mexico during the 1994–1995 Mexican peso crisis . In 2000, Greenspan raised interest rates several times; these actions were believed by many to have caused

17544-458: Was hired as a special consultant by Pacific Investment Management Company (PIMCO) to participate in their quarterly economic forums and speak privately with the bond managers about Fed interest rate policy. In August 2007, Deutsche Bank announced that it would be retaining Greenspan as a senior advisor to its investment banking team and clients. In mid-January 2008, hedge fund Paulson & Co. hired Greenspan as an adviser. According to

17680-502: Was introduced to Rand by his first wife, Joan Mitchell. Rand nicknamed Greenspan "the undertaker" because of his penchant for dark clothing and reserved demeanor. Although Greenspan was initially a logical positivist , he was converted to Rand's philosophy of Objectivism by her associate Nathaniel Branden . He became one of the members of Rand's inner circle, the Ayn Rand Collective , who read Atlas Shrugged while it

17816-402: Was known as part of the " Asian economic miracle ". In the mid-1990s, Thailand , Indonesia and South Korea had large private current account deficits, and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. In the mid-1990s, a series of external shocks began to change

17952-488: Was known as the Tom Yum Kung crisis ( Thai : วิกฤตต้มยำกุ้ง ) on 2 July, it followed the financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its currency peg to the U.S. dollar . Capital flight ensued almost immediately, beginning an international chain reaction. At the time, Thailand had acquired a burden of foreign debt . As

18088-472: Was nominated by President George W. Bush to serve for an unprecedented fifth term as chairman of the Federal Reserve. He was previously appointed to the post by Presidents Reagan, George H. W. Bush, and Bill Clinton. In a May 2005 speech, Greenspan stated: "Two years ago at this conference I argued that the growing array of derivatives and the related application of more-sophisticated methods for measuring and managing risks had been key factors underlying

18224-532: Was of Romanian Jewish descent, and his mother, Rose Goldsmith, was of Hungarian Jewish descent. After his parents divorced, Greenspan grew up with his mother in the household of his maternal grandparents who were born in Russia. His father worked as a stockbroker and consultant in New York City. Greenspan attended George Washington High School from 1940 until he graduated in June 1943, where one of his classmates

18360-399: Was subdued in his public appearances, favorable media coverage raised his profile to a point that several observers likened him to a "rock star". Democratic leaders of Congress criticized him for politicizing his office because of his support for Social Security privatization and tax cuts. Many have argued that the "easy-money" policies of the Fed during Greenspan's tenure, including

18496-465: Was to contribute to the giant housing bubble and the worst worldwide crash since the Great Depression . In 2004 he lowered interest rates to 1%, enabling banks to borrow money for free, adjusted for inflation. Naturally, the banks wanted to borrow as much as they possibly could, then lend it out, earning nice profits. The situation screamed for government oversight of lending institutions, lest

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