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Janet Yellen: I thought Greenspan's 'irrational exuberance' speech would put people to sleep

  • Alan Greenspan's observation about the go-go 1990s stock market remains perhaps the most quoted line ever from a Federal Reserve chairman.
  • When Janet Yellen first saw the "irrational exuberance" text, she thought it would put people to sleep, she says.
Federal Reserve Board Chairman Alan Greenspan in 1996.
John Duricka | AP
Federal Reserve Board Chairman Alan Greenspan in 1996.

When Janet Yellen first saw Alan Greenspan's "irrational exuberance" proclamation about the stock market, she didn't think it would have much impact, she said Tuesday.

After all, it was buried deep in a speech that the former Federal Reserve chair thought would succeed only in putting Greenspan's audience to sleep.

Wow, was she wrong.

In fact, Greenspan's observation about the go-go 1990s stock market remains perhaps the most quoted line ever from a Fed chairman. But when Yellen saw a preview of the speech, which Greenspan delivered in a televised appearance on Dec. 5, 1996, she was unmoved.

"He showed it to me in advance, and he asked my opinion, and ... I think it was something like page 26 of this speech," she recalled Tuesday in a question-and-answer session with Ben Bernanke, Yellen's immediate predecessor, at the Brookings Institution, where they are both fellows.

"Here was this reference to 'irrational exuberance,' and I thought nobody is going to be awake by the time he gets to do this, and this is just deeply buried," added Yellen, who was a member of the Fed's Board of Governors at the time.

The markets heard it. Stocks quickly sold off, though the damage was only brief. The roaring bull market, fueled by the dotcom bubble, would continue for more than three years after Greenspan's speech.

However, his warning is still considered a prescient observance, with the phrase itself repeated countless times to describe investor sentiment during booms.

Yellen is able to chuckle about the episode now.

"I thought this was too mild and nobody would get the point," she said. "That was an error in judgment on my part."

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