Alan Greenspan, a former Federal Reserve chairman, believes the U.S. government made a big mistake with its “too big to fail” policy after the 2008 financial crisis, saying he favored letting drowning banks sink into Chapter 11.
“I would like to see all institutions go through Chapter 11 if they get into trouble,” Greenspan said Tuesday during a lunchtime Q&A session at the Securities Industry and Financial Market Association’s (SIFMA) annual meeting in New York. “We don’t allow that to happen anymore. If you try to prevent it, you run into all kinds of serious troubles.”
Declaring himself a fan of behavioral economics, Greenspan said the concept of irrationality interests him because human beings do not behave in the way neoclassical economics works.
“We’re beginning to see that you have to reconstruct the system by studying how people do things. Euphoria and fear are fundamental to human nature,” he said.