FINANCIAL CRISIS
Greenspan warns of worst crisis since 1945
Monday 17 March 2008
The former Federal Reserve chairman Alan Greenspan ominously suggested the current financial crisis might turn out to be the worst since World War II, in remarks due to be published on Monday.
Monday 17 March 2008
By AFPThe
current crisis rocking the markets and global economy could turn out to
be the worst since World War II, former US Federal Reserve chairman
Alan Greenspan said in remarks published Monday.
"The current financial crisis in the US is likely to be judged in
retrospect as the most wrenching since the end of the Second World
War," Greenspan said in a Financial Times commentary.
"It will end eventually when home prices stabilise and with them the
value of equity in homes supporting troubled mortgage securities," he
said, referring to the meltdown in the US subprime home loan market and
subsequent massive losses for the banks holding the debt instruments.
"The crisis will leave many casualties," he said, his remarks coming
after Bear Stearns, the fifth largest US investment house collapsed
Friday and was taken over by JPMorgan Chase for a fraction of its value
of only a week ago.
At the weekend, the Fed also announced a series of emergency measures
intended to ease the credit crunch and calm nerves as investors fled to
apparent safety in the euro and commodities such as oil and gold, which
hit record highs again Monday as stockmarkets in Asia and Europe
tumbled.
"Particularly hard hit will be much of today’s financial risk-valuation
system, significant parts of which failed under stress," said
Greenspan, who some have criticised for contributing at least in part
to the current crisis by being too lax on monetary policy whilst head
of the Fed.
Greenspan recognised that changes would have to be made as a result of
the crisis but he argued that they should not compromise the abiding
principles of free competition.
"In the current crisis, as in past crises, we can learn much, and
policy in the future will be informed by these lessons. But we cannot
hope to anticipate the specifics of future crises with any degree of
confidence," he said.
"Thus it is important, indeed crucial, that any reforms in, and
adjustments to, the structure of markets and regulation not inhibit our
most reliable and effective safeguards against cumulative economic
failure: market flexibility and open competition."
There are no reactions so far.