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Financial crisis 'like a tsunami' | Financial crisis 'like a tsunami' |
(29 minutes 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, said the crisis had left him "in a state of shocked disbelief". | Speaking before Congress, Mr Greenspan, who stood down as Fed chairman in 2006, said the crisis had left him "in a state of shocked disbelief". |
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. |
However critics said Mr Greenspan could have boosted regulation of the markets to help prevent the crisis. | However critics said Mr Greenspan could have boosted regulation of the markets to help prevent the crisis. |
Regulation | Regulation |
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. |
The sickness afflicting the global financial economy has entered a new and worrying phase Robert Peston, BBC business editor Read Peston's Picks | The sickness afflicting the global financial economy has entered a new and worrying phase Robert Peston, BBC business editor Read Peston's Picks |
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 and some complex, risky financial products. | 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 and some complex, risky financial products. |
"The list of regulatory mistakes and misjudgements is long," Mr Waxman said. | "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". | "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. | 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 "partially" wrong decision in thinking that relying on banks to use their self-interest would be enough to protect shareholders and their equity. | However the former bank boss said he had made a "partially" wrong decision in thinking that relying on banks to use their self-interest would be enough to protect shareholders and their equity. |
Government efforts | Government efforts |
Mr Greenspan's comments come as significant uncertainty remains in global markets, amid fears that key economies have already entered a recession. | Mr Greenspan's comments come as significant uncertainty remains in global markets, amid fears that key economies have already entered a recession. |
Some share markets and currencies have been especially volatile, prompting intervention by governments to prop up banks and boost the financial sector. | Some share markets and currencies have been especially volatile, prompting intervention by governments to prop up banks and boost the financial sector. |
Recent developments include:
| Recent developments include:
|
Earlier, some Asian indexes saw sharp falls, as investors worried about the prospect of a global recession. | Earlier, some Asian indexes saw sharp falls, as investors worried about the prospect of a global recession. |
South Korea's Kospi index was down 7.4%, its lowest close since July 2005, while Hong Kong's Hang Seng index was down 4.7%, at its lowest level since April 2005. | South Korea's Kospi index was down 7.4%, its lowest close since July 2005, while Hong Kong's Hang Seng index was down 4.7%, at its lowest level since April 2005. |
Taking flight | |
South Korea is one of a number of countries that has recently seen a substantial withdrawal of capital as worried investors take their money out. | South Korea is one of a number of countries that has recently seen a substantial withdrawal of capital as worried investors take their money out. |
The phenomenon, which is also affecting others nations including Hungary, Iceland and Pakistan, represents a new and worrying phase of the financial crisis according to the BBC's business editor Robert Peston. | The phenomenon, which is also affecting others nations including Hungary, Iceland and Pakistan, represents a new and worrying phase of the financial crisis according to the BBC's business editor Robert Peston. |
He says that we are seeing a massive flight of capital out of economies perceived to have been living beyond their means - either because they have a substantial reliance on foreign borrowings or because they are net importers of good and services, or both. | He says that we are seeing a massive flight of capital out of economies perceived to have been living beyond their means - either because they have a substantial reliance on foreign borrowings or because they are net importers of good and services, or both. |