Greenspan worried boom is becoming bust

Beijing News.Net
Sunday 9th September, 2007

U.S ex-Federal Reserve boss Alan Greenspan has warned the current financial turmoil is identical to what has been seen in previous stock market crashes.

Mr Greenspan, in alluding to booms which suddenly run out of steam, has compared the current situation to the crash of 1987 and the fallout from the near-demise of Long-Term Capital Management in 1998.

At a speech in Washington, he said U.S financial panics were usually driven by a collapse in confidence in banks or land speculation turning sour.

He said the current turbulence was being driven by unwillingness by banks to lend while still trying to determine the full extent of their exposure to the troubled sub-prime mortgage market.

The Federal Reserve has said sub-prime losses could total $100bn and is under pressure to cut interest rates later this month to make borrowing cheaper for banks and consumers.

Responding to Mr Greenspan's remarks, U.S Treasury Secretary Henry Paulson acknowledged there were certain similarities to past financial crises, adding that it would take a while for confidence to return to financial markets.

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