The First Great Recession of the 21st Century

The First Great Recession of the 21st Century

Competing Explanations

Edited by Óscar Dejuán, Eladio Febrero and Maria Cristina Marcuzzo

The 2008–10 financial crisis and the global recession it created is a complex phenomenon that warrants detailed examination. The various essays in this book utilise several alternative paradigms to provide a plausible explanation and a credible cure. Great detail is given to this important analysis from different theoretical perspectives, presenting a clearer understanding of what went wrong and expounding misinterpretations of current theories and practices.

Chapter 11: Testimony to the Financial Crisis Inquiry Commission by Alan Greenspan

Edited by Óscar Dejuán, Eladio Febrero and Maria Cristina Marcuzzo

Subjects: economics and finance, financial economics and regulation, history of economic thought


1 Editorial note On 7 April 2010, Alan Greenspan, former Chairman of the Federal Reserve, appeared before the Financial Crisis Inquiry Commission of the USA. The editors have considered it useful to reproduce the nine sections of his speech where Greenspan scrutinizes the origins of the crisis in the financial system of the USA, the institutions that must bear the blame and the remedies to avoid similar crisis. 11.1 THE INTERNATIONAL ROOTS OF THE FINANCIAL CRISIS It was the global proliferation of securitized US subprime mortgages that was the immediate trigger of the current crisis. But its roots reach back, as best I can judge, to 1989, when the fall of the Berlin Wall exposed the economic ruin produced by the Soviet system. Central planning, in one form or another, was discredited and widely displaced by competitive markets. China, in particular, replicated the successful economic export-oriented model of the so-called Asian Tigers, and by 2005, according to the IMF, 800 million members of the world’s labor force were engaged in exportoriented, and therefore competitive, markets, an increase of 500 million workers since 1990. Additional hundreds of millions became subject to domestic competitive forces, especially in Eastern Europe. As a consequence, between 2000 and 2007, the rate of growth in real GDP of the developing world was more than double that of the developed world. The developing world’s consumption restrained by culture and inadequate consumer finance could not keep up with the surge of income and, as a consequence, the savings...

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