Provided below is an article reporting on Alan Greenspan's comments on the global financial crisis that is hitting most of the large economies today. Greenspan was Chairman of the Federal Reserve Bank in the USA for more than a decade and retired recently.
"Financial crisis is 'once in a century credit tsunami', Greenspan says as he talks of his shock at state of economy
", by David Gardner, and taken from www.dailymail.co.uk
'Once in a century credit tsunami': Alan Greenspan describing the financial crisis to Congress in Washington today
Former U.S. Federal Reserve chairman Alan Greenspan has admitted that he was blindsided by the 'once-in-a-century credit tsunami' that has wreaked havoc on the world's economies.
The man once hailed as one of the most accomplished central bankers in America's history confessed he was in 'a state of shocked disbelief'.
Mr Greenspan, who headed the Federal Reserve for more than 18 years, said the financial crisis 'turned out to be much broader than anything I could have imagined'.
And he warned the economic meltdown will drive millions of people out of work.
'Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,' Mr Greenspan told congressional lawmakers.
'Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.'
The humbled former Fed chief, who has written best-selling books on the economy, has been blasted by critics who claim he left interest rates too low for too long, spurring an unsustainable housing boom, and failed to crackdown on sub prime mortgages being doled out to home-buyers who didn't satisfy conventional borrowing requirements.
It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.
Fighting to restore his battered reputation, Mr Greenspan blamed the sub prime collapse on over-eager investors who did not take into account the threats that would be posed once home prices stopped surging upward.
'It was the failure to properly price such risky assets that precipitated the crisis,' he added.
Mr Greenspan was hauled in front of the House of Representatives Oversight Committee along with former U.S. Treasury Secretary John Snow and Securities and Exchange Commission chairman Christopher Cox as Congress sought to discover how much regulatory failings contributed to the crisis.
'The list of mistakes is long and the cost to taxpayers is staggering,' said committee chairman Henry Waxman.
'Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong. The market is infallible.
'For too long, the prevailing attitude in Washington has been that the market always knows best.
'The Federal Reserve had the authority to stop the irresponsible lending practices, but its long-time chairman, Alan Greenspan, rejected pleas that he intervene,' he added.
Mr Waxman, a Democrat, asked point-blank whether Mr Greenspan agreed he was wrong in failing to intervene in the markets when he was in charge of the U.S. central bank.
Mr Greenspan has long argued that regulatory intrusion slows the economy.
'My question is simple: Were you wrong?' asked Mr Waxman.
Mr Greenspan said he was 'partially wrong' in the case of credit default swaps, complex trading tools meant to act as insurance for bond buyers against default.
'I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders and the equity,' he admitted.
It was the closest he got to accepting some blame for the financial calamity that has reverberated around the world.
Mr Greenspan said stabilisation of home prices is vital to revive the paralysed economy, but he said that was not likely to occur for 'many months in the future.'
When the housing market finally recovers, then 'the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards re-engagement with risk,' he added.
Until that happens, he said the government is correct to move forward aggressively with efforts to support the financial sector.
He called the £400billion package approved by Congress a fortnight ago 'adequate to serve the need' and claimed its impact was already being felt in the markets.
Wall Street in New York closed almost six per cent down last night but rallied on opening and was up more than 200 points in early trading.
There were huge losses in Asia overnight but British shares in London appeared more resilient after the pound dived and £4billion was wiped off stocks yesterday.
The FTSE-100 opened up 0.5 per cent but swung between positive and negative territory all day. Rising U.S. shares pushed it back to be one per cent up at the close.
However, the losses on the Dow Jones last night sparked huge sell-offs across the globe:
- Wall Street closed down almost six per cent amid persistent worries about the state of the U.S. economy but climbed back in early trading this afternoon
- Japan's Nikkei fell by as much as 7.59 per cent at one stage due to fears about its shrinking foreign exports before rallying to close 2.5 per cent down
- In Hong Kong, the Hang Seng closed down more than 500 points or 3.5 per cent after shares slumped to their lowest level since April 2005
- South Korea's benchmark index closed down a massive 7.4 per cent. There were also falls in India, Australia, New Zealand and Russia
- In Europe, Germany's Dax was in the red from early trading. By late afternoon, the French Cac-40 has also fallen into negative territory, down 1.7 per cent.
Finland's finance minister Jyrki Katainen became the latest leader to declare recession was around the corner, estimating it may last up to three years in Europe.
'Recession is very close in some particular countries, maybe in all the European countries,' he told Bloomberg.
'I don't know how long a recession or down-cycle we will face, but maybe it will take some two or three years. Even if we can calm the international turmoil, slower economic development will follow.'
Leaders from 43 countries across Asia and Europe will meet in China tomorrow for a two-day summit to discuss a co-ordinated response to the economic and financial problems.
EU Commission President Jose Barroso, already in Beijing for the meeting, said today: 'We are living in unprecedented times and we need unprecedented levels of global coordination. It's very simple; we swim together, or we sink together.'
Mr Brown admitted for the first time yesterday that the UK was sliding into recession, a statement that wrecks his claims to have ended 'boom and bust'.
His words during fractious House of Commons exchanges came hours after Bank of England governor Mervyn King also used the 'R' word for the first time.
A technical recession is defined as two straight quarters of economic contraction. The last time this has happened in Britain was under John Major in the early 1990s.
Mr Brown has for years claimed to have put an end to Britain's record of explosive bursts of growth followed by painful economic slumps.
He argued that reforms such as Bank of England independence and the implementation of public borrowing rules had put the country on a path to long-term stability.
But, the worst banking crisis since World War One has propelled the country into a period of extraordinary economic danger.
Government figures due out tomorrow are expected to show that between July and September the economy shrank for the first time since 1992.
And Mr Brown is being forced to tear up his fiscal rules as he attempts to spend his way out of the downturn.
The Prime Minister struggled to defend his economic record in Commons clashes with David Cameron.
The Tory leader three times challenged Mr Brown to withdraw his previous claims to have abolished 'boom and bust', but the Prime Minister refused.
Mr Brown said: 'The Governor of the Bank of England said last night that not since the First World War has the international banking system been so close to collapse, and I agree with him.'
He went on: 'Having taken action on the banking system, we must now take action on the global financial recession which is likely to cause recession in America, France, Italy, Germany, Japan and - because no country can insulate itself from it - Britain too.'
Those last words were greeted by Tory cries of 'at last'.
Mr Cameron said: 'Anyone listening to this exchange will know that he claimed the credit in the boom, so why won't he take responsibility in the bust?
'Let me ask him one more time, it's a simple yes or no, have you abolished boom and bust? Yes or no?'
Mr Brown responded by pointing out that interest rates have not hit 15 per cent, as they did under Mr Major.
Observers claimed yesterday's exchanges were the first time Mr Cameron has bested Mr Brown in debate on his favourite turf - the economy.
Many economists say the Bank of England is now likely to cut base rate by at least a half point at next month's meeting.
This would be the first back-to-back half-point reductions since the Bank gained independence from the Treasury in 1997.
Mr Brown and other world leaders will meet on November 15 in Washington to address the global financial crisis.
It is the first in a series of summits to address what economists predict could be a long and deep downturn."
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