Greenspan said in a " Squawk Box " interview that stocks by historical standards are "significantly undervalued" even considering the recent moves higher. He added that the payroll tax increase didn't dent spending because of rising asset prices.Comment: See earlier post - Dow record: irrational or rational exuberance? My own view ... always good to be a rational investor
Greenspan Concedes to `Flaw' in His Market Ideology
Excerpt:
Former Federal Reserve Chairman Alan Greenspan said a ``once-in-a-century credit tsunami'' has engulfed financial markets and conceded his free-market ideology shunning regulation was flawed.
``Yes, I found a flaw,'' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. ``I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.'' Greenspan added he was ``partially'' wrong for opposing the regulation of derivatives.
Greenspan's contrition came after lawmakers and Fed watchers increasingly blamed the former Fed chairman for helping cause the crisis with lax oversight of the housing boom and derivatives markets. Normally afforded deference by Congress, he endured almost four hours of questions from lawmakers less than two weeks before a national election.
``Greenspan is finally taking some responsibility for his actions,'' said Paul Kasriel, director of economic research at Northern Trust Co. in Chicago and a former Fed official. ``The damage has been done. His reputation has definitely been tarnished.''
Greenspan, responding to questions, said only ``onerous'' regulation would have prevented the financial crisis. Stifling rules would have suppressed growth and hurt Americans' standards of living, he said.
Taking Hard New Look at a Greenspan Legacy
Excerpt:
George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”
And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.
US in 'once-in-a-century' financial crisis : Greenspan
Excerpt:
The United States is mired in a "once-in-a century" financial crisis which is now more than likely to spark a recession, former Federal Reserve chief Alan Greenspan said Sunday.
The talismanic ex-central banker said that the crisis was the worst he had seen in his career, still had a long way to go and would continue to effect home prices in the United States.
"First of all, let's recognize that this is a once-in-a-half-century, probably once-in-a-century type of event," Greenspan said on ABC's "This Week."
Asked whether the crisis, which has seen the US government step in to bail out mortgage giants Freddie Mac and Fannie Mae, was the worst of his career, Greenspan replied "Oh, by far."
"There's no question that this is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go," Greenspan said.
"And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes.
"That will induce a series of events around the globe which will stabilize the system."
Greenspan was also asked whether the United States had a greater-than 50 percent chance of escaping a recession.
"No, I think it's less than 50 percent.
"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."
The former Federal Reserve chairman also predicted that the financial crisis would see the failure of more major financial institutions, even as embattled Wall Street investment giant Lehman Brothers scrambled to find a buyer.
"In and of itself that does not need to be a problem.
