17 March 2008 - 11H00
Greenspan warns of worst crisis since 1945
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.
The 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."
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Comments
September Meltdown
We are all looking back at Alan's remarks in March especially now as other shoes are falling. As of September 15, 2008 we have seen the recent collapse of Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, and AIG. Collapse du jour. Who is next? Here are the Chinese. Here is middle east oil money. All are holding paper denominated in U.S. dollars. Shall they cut their loses? If they cut and run, the market stumbles even further. If they hold, the market stumbles even further. Trillions of dollars evaporating. Here is the U.S. government pumping greenbacks into overseas wars in the middle-east, a pipeline from America pumping billions of dollars of borrowed greenbacks onto the dessert sand day and night. One money pipeline to Iraq, another one to Afghanistan. I do not have enough brain cells in my head to conceptualize the depth and breath of global financial markets in such turmoil. Only two things left to do: print money and lower interest rates. Lord help us.
Greenspan: Hindsight is 20-20
When a former member of the Board of Governors of the Federal Reserve System, essentially a colleague of Chairman Greenspan, alerted him several times to the potential hazards of subprime mortgages Greenspan dismissed the warning. Now, he (more than likely profits from speaker's fees) prophesizes gloom/doom...amazing how sharp his eyesight has become when he was so blind to the situation he, to some degree, caused.
Basic economics, as in ECON
Basic economics, as in ECON 101, teaches about the 'invisible hand' that moves our economy based on the impulses of consumers. Mr. Greenspan is one of the country's great minds - as there weren't any complaints in the major gains in riches in years prior to today. The war in Iraq and poor mortgage lending practices are to blame and as consumers are unsure about the future, we have minimized our typically frivolous spending practices. As Mr. Greenspan and Mr. Bernanke are well aware, in order to manipulate the 'invisible hand' you raise interest rates to stimulate consumer saving, and lower interest rates to stimulate conumer spending. It's not too late, we will recover, hopefully with more discipline and respect for those whose jobs put them on the front line of caring for our country...
Real Beginning of the End
Reality is piling up. Oil is disappearing, climate change is accelerating, banks are going under, the US economy is sinking, world population is soaring and war is everywhere... What will pull the world out of this? Nothing. This has been in the works for at least a century and now its happening. Let go, its a different world ahead and none of the old rules apply. Are you prepared to be a refugee?
Let's pray the worst does not happen...
If America goes belly-up as a capitalistic nation in the coming years, we will all have Mr. Greenspan to thank.
If the world economy does indeed collapse and CRASH, then it may come to pass that Greenspan (thru his policies) may have put more rich people in danger than anyone since Louis XVI and Marie Antoinette.
Needless to say, The People will not be happy.
Really?
Could he be trying to help the dems? Especially, since his wife has been a paid adviser to the Clinton Campaign!! Hummm
Greetings To The Former Chairman
Why should anyone give this gentleman any attention at all? He has no formal training in economics. The only degree he holds is in music and he's been using it for years to play politics like a symphony conductor. During a time when this nation experienced tremendous growth in the housing market, he chose to raise interest rates while claiming he was doing the banks, etc. a favor. When he chose to retire, the President presented him with a medal for his bureaucratic years of service, he to demonstrate his thanks by writing a book bad-mouthing most every President he ever worked with while keeping his skirts clean. Now the financial markets are bearing the fruits of Greenspan's high interest rates, which he now calls ". . . the most wrenching since the end of the Second World War." Thankfully the Fed has a more educated, capable chairman that will bring stability after this Greenspan meltdown. America will recover from this, and hopefully Greenspan will learn to shut up.
"Many Casualties"
Greenspan is more right than he may realize. Were it not that this is a Presidential election year, the casualties would include American democracy itself. The economic situation will now become the principal issue of the campaign, and whoever is elected will have to cope successfully with it, or this election will be America's last one. -- Olean, New York, USA
Alan Greenspan's latest remarks
Isn't Alan Greenspan a director of Bear Sterns; and wasn't he also the chief financial office?
Where does he get off criticizing the USA so much?
Master of the Obvious
It is touching for Alan to come out with comments on a disaster that has his fingerprints all over it. The fact of the matter is that this watershed moment is the end of a 50 year credit cycle. It is going to hurt many real bad due to the monetary techniques employed in the last 10-15 years during Alan's watch. By making money and credit cheap, it has created a situation where credit is too expensive, thus, a de-leveraging process where many lenders will fail and many people with them, out in the cold. History will not be kind to Mr. Greenspan, when it is all said and done. On the other hand, most people do not understand any of this...
Grain de Salt
Greenspan is nothing but a liberal mouthpiece aimed at discrediting a political administration he disagrees with. Knowing that the economy will inevitably bounce back, he, like so many liberal counterparts, wants to talk the economy down as much as possible (much like many aimed for defeat through defeatism in Iraq), have the economic woes blamed on Bush and the free market, and cement more power for the Fed and federal government generally to regulate markets.
Deeper problem,
This 'crisis' is much 'deeper' than the housing bubble. The fact that the US is a 70% service economy and has lost almost its entire industrial sector to Asia is the real underlying problem. This is evident in the 6% current account deficit - basically America is consuming 6% more than it is producing and this up until recently was being financed by foreigners. Free trade is not free. A country like America practicing free trade will not compete with a mercantilist country like China. The chickens have come home to roost.
Greenspan helped create this mess
He lowered interest rates way below nomnal GDP during his tenure causing a mass demand for cheap capital. He did NOTHING to ensure the evident fraudulent lending prcatices....WHAT A HYPOCRITE!
Whose fault, Alan?
Given that this man's incrediblly inflationary monetary policy is the main author of the current troubles, I suppose we could be excused for finding his diagnosis of the problem odd. As if this all appeared from nowhere, and as if it wasn't to be laid primarily at his feet
money crunch
Bankers, The Un and governments around the world have wasted so much money and stollen so much from the workers of the world that there is now, no margin. In addition these entities turn the blame on the very poeple who have worked and sacrificed. The prime reason that the free countries of the world are being overrun with illegall imigrants is also another sign of the worlds greedy grabbing and stealing all that can be hoarded. Very simple...The more greed the more hatred there is toward freedom and this hatred of freedom is destroying our world.