Greenspan Says Financial Crisis Not Over

It appears as if Alan Greenspan still has some power despite being retired for several months. His warning that the banks need to raise large amounts of capital and that the financial crisis is not over, contributed to stocks falling yesterday. Tim Iacono from The Mess That Greenspan Made discusses Mr.Greenspan's reappearance and how he was dead wrong about a previous financial crisis.

Former Fed chairman Alan Greenspan probably got a little warm and fuzzy feeling inside sometime over the last few hours if he happened to catch this headline at Bloomberg.



He probably thought to himself, "I've still got it", before proceeding with his daily bubble bath, ruminating in a manner only he knows how about the state of global economic affairs, now more than three years into a retirement that is anything but private.

Yesterday's headline read Greenspan Says Banks Still Have a ‘Large’ Capital Requirement and the report contained warnings uttered by the former Maestro about the U.S. banking system. That is, the same U.S. banking system that the U.S. government recently declared healthy after the successful conclusion of the bank stress tests.

Former Federal Reserve Chairman Alan Greenspan signaled that the financial crisis has yet to end even as borrowing costs tumble, warning that U.S. banks must raise “large” amounts of money.

“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview yesterday in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”

Greenspan’s comments suggest he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders.

“We’re on the edge and if this thing doesn’t get resolved quickly I’m worried,” he said before a meeting with House of Representatives members on financial regulation that was organized by the Washington-based Bipartisan Policy Center.

He went on to note the "extraordinary improvement" in the global economy from the near-death experience of the last six months, predicted that the second quarter of 2009 would prove to be the bottom of the U.S. recession, and voiced opposition to the idea of a "systemic regulator".

Earlier in the week, in a telephone interview with Bloomberg's Scott Lanman, Greenspan commented on the career of the outgoing Hong Kong central bank chief.

Former Federal Reserve Chairman Alan Greenspan, who in 1998 criticized Hong Kong’s central bank for purchasing $15 billion in stocks during the Asian financial crisis, now calls it a savvy move.

“It turned out that his timing was exquisite,” Greenspan said, referring to Joseph Yam, who plans to retire Oct. 1 after 16 years as chief executive of the Hong Kong Monetary Authority.

“It was a risky action, but he pulled it off,” as share prices rose for several years, the former Fed chief said in a telephone interview today. “I wouldn’t recommend that as a general rule for central banks.”

The year 2006 will probably be looked back upon as the Greenspan "quiet-period", immediately after his term at the Fed came to an end, during which time he gave successor Ben Bernanke about nine months of breathing room before popping up nearly everywhere, inking deals with investment firms that profited handsomely during and immediately after his tenure as Fed chief.

The "quiet period" will someday resume ... after all, he is 83 years old.

This post can also be viewed on themessthatgreenspanmade.blogspot.com.