US in 'once-in-a-century' financial crisis: Greenspan
Tuesday, 16 September 2008
WASHINGTON, Sept 15 (PTI): The US is in a "once-in-a-century" financial crisis and chances of it escaping a recession next year is less than 50 per cent, former Chairman of Federal Reserve Alan Greenspan said yesterday.
Greenspan, whose voice and views carry tremendous weight still on Wall Street, argued that it is not in the best interests of either financial industry or that of the economy to have the government getting involved in the short-selling in the financial institutions until the situation stabilised.
"If you had pressed me the last time I was here, I would say very unlikely," Greenspan told ABC News when asked on the prospect of the United States escaping recession next year.
"The remarkable thing is now the non-financial part of the economy is done...we've gone through a period of long-term interest rates being very low, and that enabled corporate sector and business generally to take its short-term liabilities and fund them into longer-term liabilities at low interest rates," he said.
Asked if the chances of escaping a recession now is greater than 50 per cent, Greenspan said "No, I think it's less than 50 per cent. I can't believe we could have a once-in-a-century type of financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring."
Greenspan was asked that against a backdrop of failure of the mortgage giants, in the folding of Bear Stearns and now with the crisis at Lehman Brothers, whether America is going to witness to more financial institutions failing.
"I suspect we will. But in and of itself that does not need to be a problem. It depends on how it is handled and how the liquidations take place. And indeed we shouldn't try to protect every single institution," he said.
AFP adds: A consortium of 10 global commercial and investment banks announced plans yesterday to provide 70 billion dollars to help offset a credit squeeze amid an anticipated collapse of Wall Street giant Lehman Brothers.
Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, and UBS, said in a joint statement they "initiated a series of actions to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."
They agreed to create a "collateralised borrowing facility" of 70 billion dollars, with each bank contributing seven billion dollars, to help ease access to credit.
They also said they would work together "to help facilitate an orderly resolution" of the derivatives exposures between Lehman Brothers and its counterparties.
"These actions reflect the extraordinary market environment," the statement said.
"The banks are committed to continuing to work closely with one another as well as the US Treasury Department, the Federal Reserve, the Securities and Exchange Commission, governments and regulators around the world, and other market participants, to ensure the industry is doing everything it can to provide additional liquidity and assurance to our capital markets and banking system."
The 10 banks would be able to tap this facility, with any bank eligible for up to one-third of the fund. The amount may be expanded if more banks join the program.
The announcement came moments after the Federal Reserve announced new steps to ease access to emergency credit for struggling financial companies, by broadening the collateral to be used for central bank loans.
The unusual Sunday moves came as financial markets braced for a possible collapse of Lehman Brothers, a Wall Street giant whose failure could have wide-ranging implications for the financial system.
While there was no official news on Lehman's fate, analysts expected a bankruptcy filing that could affect a range of companies dealing with the Wall Street giant, with a potential to worsen the global credit crunch.
Greenspan, whose voice and views carry tremendous weight still on Wall Street, argued that it is not in the best interests of either financial industry or that of the economy to have the government getting involved in the short-selling in the financial institutions until the situation stabilised.
"If you had pressed me the last time I was here, I would say very unlikely," Greenspan told ABC News when asked on the prospect of the United States escaping recession next year.
"The remarkable thing is now the non-financial part of the economy is done...we've gone through a period of long-term interest rates being very low, and that enabled corporate sector and business generally to take its short-term liabilities and fund them into longer-term liabilities at low interest rates," he said.
Asked if the chances of escaping a recession now is greater than 50 per cent, Greenspan said "No, I think it's less than 50 per cent. I can't believe we could have a once-in-a-century type of financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring."
Greenspan was asked that against a backdrop of failure of the mortgage giants, in the folding of Bear Stearns and now with the crisis at Lehman Brothers, whether America is going to witness to more financial institutions failing.
"I suspect we will. But in and of itself that does not need to be a problem. It depends on how it is handled and how the liquidations take place. And indeed we shouldn't try to protect every single institution," he said.
AFP adds: A consortium of 10 global commercial and investment banks announced plans yesterday to provide 70 billion dollars to help offset a credit squeeze amid an anticipated collapse of Wall Street giant Lehman Brothers.
Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, and UBS, said in a joint statement they "initiated a series of actions to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."
They agreed to create a "collateralised borrowing facility" of 70 billion dollars, with each bank contributing seven billion dollars, to help ease access to credit.
They also said they would work together "to help facilitate an orderly resolution" of the derivatives exposures between Lehman Brothers and its counterparties.
"These actions reflect the extraordinary market environment," the statement said.
"The banks are committed to continuing to work closely with one another as well as the US Treasury Department, the Federal Reserve, the Securities and Exchange Commission, governments and regulators around the world, and other market participants, to ensure the industry is doing everything it can to provide additional liquidity and assurance to our capital markets and banking system."
The 10 banks would be able to tap this facility, with any bank eligible for up to one-third of the fund. The amount may be expanded if more banks join the program.
The announcement came moments after the Federal Reserve announced new steps to ease access to emergency credit for struggling financial companies, by broadening the collateral to be used for central bank loans.
The unusual Sunday moves came as financial markets braced for a possible collapse of Lehman Brothers, a Wall Street giant whose failure could have wide-ranging implications for the financial system.
While there was no official news on Lehman's fate, analysts expected a bankruptcy filing that could affect a range of companies dealing with the Wall Street giant, with a potential to worsen the global credit crunch.