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October 25th, 2013
06:08 PM ET

Alan Greenspan defends legacy from harsh criticism

Former Federal Reserve Chairman Alan Greenspan is out with a new book, "The Map and the Territory: Risk, Human Nature, and the Future of Forecasting." The book has already garnered some harsh reviews, particularly from liberal progressive writer David Dayen, who wrote in The New Republic Tuesday, "Anyone who’s paid attention to the economy the past few years knows how ridiculous it is to fete Greenspan, the main architect of the policies that led to the Great Recession."

Dayen suggests Greenspan shares the blame with JPMorgan Chase for duping investors into purchasing mortgage-backed securities that were stuffed with garbage loans because his “allergy to regulation and unshakeable belief in the virtues of the free market led him to ignore the bubble and its risks, infusing investors and consumers with confidence that the run-up in home prices was perfectly normal.”

"This is not an American bubble. The housing bubble looks the same whether you're going to Canada, Australia or any of 20 other countries. We're somewhere in the middle," said Greenspan.

"The critical question that we all missed is when it would break, and one of the things I demonstrate basically in the book is you cannot determine that," said Greenspan.

The book is an investigation. Greenspan goes back and looks at what could have been done differently and one of the things he concludes is that spirits, or "exuberance" as he calls them, such as depression and anxiety, played a bigger role.

But did they play a bigger role than the absence of sufficient regulation on Wall Street?

"Absolutely. This is basically an endeavor to find out what makes the economy function and how best to understand it. What the issue of spirits is all about is a change in view on my part – and I presume a number of the people who are forecasters who make a living at that – is that it's not that we were unaware there was irrational actions that people acted crazily," said Greenspan.

"What it turns out we did wrong is that the fundamental premise that people act in their own rational self-interest all the time of course is wrong. We knew that. But far more importantly, you can model animal spirits and that matters. That matters for the future predicting," said Greenspan.

For more of our interview with former Fed Chair Alan Greenspan, check out the video above.

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