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Financial crisis 'like a tsunami' | Financial crisis 'like a tsunami' |
(about 1 hour later) | |
Former Federal Reserve chairman Alan Greenspan has called the recent turmoil in the global financial markets a "once in a century credit tsunami". | Former Federal Reserve chairman Alan Greenspan has called the recent turmoil in the global financial markets a "once in a century credit tsunami". |
Speaking before Congress, Mr Greenspan, who stood down as Fed chairman in 2006 after 18 years, said he expected the US unemployment rate to jump sharply. | Speaking before Congress, Mr Greenspan, who stood down as Fed chairman in 2006 after 18 years, said he expected the US unemployment rate to jump sharply. |
He added that recovery in the US housing market was "many months" away. | He added that recovery in the US housing market was "many months" away. |
Returning to the crisis in the banking sector, he said he had been left in "a state of shocked disbelief". | Returning to the crisis in the banking sector, he said he had been left in "a state of shocked disbelief". |
Mr Greenspan made the comments to the House of Representatives Committee on Oversight and Government Reform. | Mr Greenspan made the comments to the House of Representatives Committee on Oversight and Government Reform. |
Regulation | |
Committee chairman Henry Waxman, a Democrat, suggested that Mr Greenspan had added to the problem by rejecting calls for the Fed to regulate the sub-prime sector among others. | |
"The list of regulatory mistakes and misjudgements is long," Mr Waxman said. | |
"Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite," he added, saying that the mantra became "government regulation is wrong". | |
One of the main criticisms against Mr Greenspan was that he left interest rates too low for too long, thereby fuelling the housing boom - which later turned out to be unsustainable. | |
However the former bank boss said he had made a "mistake" in thinking that relying on banks to use their self-interest would be enough to protect shareholders and their equity. | |
Mr Greenspan's comments come as significant uncertainty remains in global markets, amid fears that a number of key economies are or have already entered a recession. | |
World markets have been especially volatile, prompting intervention by governments to prop up banks and boost the financial sector. | |
Recent developments include:
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Earlier key indexes saw sharp falls, with South Korea's Kospi index down 7.4%, its lowest close since July 2005. | |
Hong Kong's Hang Seng index was down 4.7%, at its lowest level since April 2005 while in Australia, the benchmark index closed down 4.4%. | |
However, in mid afternoon trade the Dow Jones Industrial Average climbed 2.6%, helped by rising oil prices on expectations that Opec would cut output. |