Friday, May 7, 2010
Alan Greenspan previously said that the current credit crunch is "by far the greatest financial crisis, globally, ever" -- including the 1930s Great Depression.
As Bloomberg noted:
Greenspan said that while the economy was in worse shape in the Great Depression, the recent financial crisis was potentially more harmful than that in the 1930s because “never had short-term credit literally withdrawn.”
Today, Greenspan said:
Greenspan is not alone
The evaporation of the supply of such credits on so global a scale within hours or days of the Lehman failure is, I believe, without historical precedent ...
The bankruptcy of Lehman Brothers in September 2008 precipitated what, in retrospect, is likely to be judged the most virulent global financial crisis ever.....
In February, I noted that this could be worse than the 1930's, but that the governments of the world were doing the wrong things in response to the crisis:
For an explanation of what governments have done wrong, see this, this and this.
As I pointed out last May:Unfortunately, virtually everything the American government has done since the crisis started has been counterproductive.... The same is true of most other governments.
The following experts have said that the economic crisis could be worse than the Great Depression:
- Fed Chairman Ben Bernanke
- Investment advisor, risk expert and "Black Swan" author Nassim Nicholas Taleb
- Former Fed Chairman Paul Volcker
- Nobel prize winning economist Joseph Stiglitz
- Economics scholar and former Federal Reserve Governor Frederic Mishkin
- Well-known PhD economist Marc Faber
- Former Goldman Sachs chairman John Whitehead
- Morgan Stanley’s UK equity strategist Graham Secker
- Former chief credit officer at Fannie Mae Edward J. Pinto
- Billionaire investor George Sorors
- Senior British minister Ed Balls
Greenspan also said that regulators - including the Fed - missed the boat:
Greenspan acknowledged what Stiglitz, Roubini, Taleb and others have been saying - that part of the problem is that profits are being privatized while losses are socialized:
The Fed is among the regulators that “failed to fully comprehend the underlying size, length and impact”...
“For decades, with little to no data, most analysts, in my experience, had conjectured a far more limited tail risk than 2008 exposed,” he said. He said regulators and “virtually all others” shared a “woeful record” in predicting the crisis. He said credit-rating agencies proved no better at predicting the crisis than investors.
But if capital and collateral are adequate...losses will be restricted to equity shareholders who seek abnormal returns .... Taxpayers will not be at risk. Financial institutions will no longer be capable of privatizing profit and socializing losses."And Greenspan called again for a break-up of the too big to fails, like virtually every other economist and financial expert not currently working for the Fed or a giant bank (and some that are).