Opinion|Alan Greenspan Was Wrong About One Thing. It Was a Big One.

Whatever else, Alan Greenspan should be remembered for what is surely the rarest virtue among public officials: admitting error.

The moment was Oct. 23, 2008. The American financial system was in tatters. Bear Stearns and Lehman Brothers were bust, and the government had taken equity stakes in private banks in a bid to arrest the crisis. Americans were swamped with mortgage debt and suffering through a brutal recession.

Mr. Greenspan, the former chairman of the Federal Reserve, had retired less than three years earlier. No one had championed the free market system or worked to block financial regulation, which he disparaged as both harmful and unnecessary, with more ardor than he had. As head of the most powerful of the agencies that regulated banks, he hadn’t used his authorities to quash the bubble in mortgage lending.

Mr. Greenspan was no corporate toady or business apologist. He was an honest and inquisitive intellectual committed to the principles of Adam Smith, principles that work well most of the time.

This was not one of those times, and his conviction was shaken. “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he confessed that day to the House Committee on Oversight and Government Reform.

Mr. Greenspan questioned the principles he had developed as a young disciple of Ayn Rand and employed in a storied career as an adviser to corporate chieftains and later to U.S. presidents.