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."