Greenspan to Government: Hands Off

Market capitalism can ride out the crisis, writes former Fed boss
By Jason Farago,  Newser Staff
Posted Aug 5, 2008 1:15 PM CDT
Former United States Federal Reserve Board chairman Alan Greenspan listens to his introduction before speaking to a bank conference in Montreal Friday, May 30, 2008.    (AP Photo/The Canadian Press, Ryan Remiorz)
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(Newser) – The credit crisis is far from over, and more banks and financial institutions might require government bailouts along the way, Alan Greenspan acknowledges. The crunch will relax only when home prices, "the ultimate collateral support for much of the financial world’s mortgage-backed securities," begin to stabilize, the ex-Fed chairman writes for the Financial Times. Until then, governments must resist the temptation to respond to the downturn with heavy-handed regulation.

Greenspan says "no economic paradigm" will ever suppress "human nature’s propensity to sway from fear to euphoria and back." Because of that, a credit crisis like this one is inevitable "once or twice a century." To respond to it with more government interference, says Greenspan, will only make things worse: "If that becomes widespread, globalization could reverse—at awesome cost."