The crisis exposed the dark side of market fundamentalism—the ethos of deregulation that had dominated world affairs for the preceding thirty years. Alan Greenspan, the head of the Federal Reserve Bank from 1987 to 2006, had steered the American economy through crises ranging from the stock market collapse of 1987 to the terrorist attacks of 2001. Greenspan had presided over much of the era of deregulation, artificially low interest rates, and excessive borrowing and spending. He and his successors had promoted the housing bubble and saw all sorts of speculative behavior flourish with no governmental intervention. In effect, they allowed securities firms to regulate themselves.

In 2008, Greenspan admitted to Congress that there had been a “flaw” in his long-held conviction that free markets would automatically produce the best results for all and that regulation would damage banks, Wall Street, and the mortgage market. He himself, he said, was in a state of “shocked disbelief,” as the crisis turned out to be “much broader than anything I could have imagined.” Greenspan’s testimony seemed to mark the end of an era. Every president from Ronald Reagan onward had lectured the rest of the world on the need to adopt the American model of unregulated economic competition, and berated countries like Japan and Germany for assisting failing businesses. Now, the American model lay in ruins and a new role for government in regulating economic activity seemed inevitable.

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