The world will suffer another major financial crisis, says former Federal Reserve chief Alan Greenspan
Pastor Dale Morgan
The world will suffer another major financial crisis, says former
Federal Reserve chief Alan Greenspan
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Mr Greenspan says bankers should have predicted the crash
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*"The crisis will happen again but it will be different," he told BBC
Two's The Love of Money series.
He added that he had predicted the crash would come as a reaction to a
long period of prosperity.
But while it may take time and be a difficult process, the global
economy would eventually "get through it", Mr Greenspan added.
"They [financial crises] are all different, but they have one
fundamental source," he said.
"That is the unquenchable capability of human beings when confronted
with long periods of prosperity to presume that it will continue."
Speaking a year after the collapse of US investment bank Lehman
Brothers, which was followed by a worldwide financial crisis and global
recession, Mr Greenspan described the behaviour as "human nature".
He said the current crisis was triggered by the trade in US sub-prime
mortgages - home loans given to people with bad credit histories - but
he added that any factor could have been the catalyst.
If it were not the problem of these toxic debts "something sooner or
later would have emerged", Mr Greenspan said.
Risks
Mr Greenspan, who when he ran the US central bank was hailed as a man
who could move markets, also warned that the world's financial
institutions should have seen the looming crisis.
We will have more crises and none of them will look like this because no
two crises have anything in common
Alan Greenspan, former US Fed chief
"The bankers knew that they were involved in an under-pricing of risk
and that at some point a correction would be made," he said.
"I fear too many of them thought they would be able to spot the actual
trigger point of the crisis in time to get out."
He also warned that Britain, with its globally-focussed economy, would
be harder hit than the US by the current recession and collapse in world
trade.
"Obviously we've both suffered very considerably but ... Britain is more
globally oriented as an economy and the dramatic decline in exports
globally and trade generally following the collapse of Lehman Brothers
had dramatic effects in the financial system of Britain," Mr Greenspan said.
"It's going to take a long while for you [Britain] to work your way
through this."
Road to recovery
In order to prevent the situation arising again financiers and
governments should look to clamp down on fraud and increase capital
requirements for banks, the former central banker said.
Regulations targeting the latter would mean banks would be forced to
hold enough money to cover their normal operations and honour withdrawals.
However despite his belief in a brighter future, the former Fed chief
did warn that the path to recovery should steer clear of protectionism
as applying strict regulations could hamper recent developments that
have opened up global trade.
"The most recent endeavour to re-regulate is a reaction to the crisis.
The extraordinary impact of these global markets is making a lot of
financial people feeling they have lost control.
"The problem is you cannot have free global trade with highly
restrictive, regulated domestic markets."
Historic event
During the interview for BBC Two's The Love of Money series, the former
Fed chief said the current economic crisis was a "once in a century type
of event", and one that he did not expect to witness.
Blamed by some for not doing more to prevent the crisis, Mr Greenspan
denied any responsibility for the problems gripping the global economy.
"It's human nature, unless somebody can find a way to change human
nature, we will have more crises and none of them will look like this
because no two crises have anything in common, except human nature."