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2009-09-09 06:22:48
The world will suffer another financial crisis, former Federal Reserve chief
Alan Greenspan has told the BBC.
"The crisis will happen again but it will be different," he told BBC Two's The
Love of Money series.
He added that he had predicted the crash would come as a reaction to a long
period of prosperity.
But while it may take time and be a difficult process, the global economy would
eventually "get through it", Mr Greenspan added.
"They [financial crises] are all different, but they have one fundamental
source," he said.
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"That is the unquenchable capability of human beings when confronted with long
periods of prosperity to presume that it will continue."
Speaking a year after the collapse of US investment bank Lehman Brothers, which
was followed by a worldwide financial crisis and global recession, Mr Greenspan
described the behaviour as "human nature".
He said the current crisis was triggered by the trade in US sub-prime mortgages
- home loans given to people with bad credit histories - but he added that any
factor could have been the catalyst.
If it were not the problem of these toxic debts "something sooner or later
would have emerged", Mr Greenspan said.
Risks
Mr Greenspan, who when he ran the US central bank was hailed as a man who could
move markets, also warned that the world's financial institutions should have
seen the looming crisis.
"The bankers knew that they were involved in an under-pricing of risk and that
at some point a correction would be made," he said.
"I fear too many of them thought they would be able to spot the actual trigger
point of the crisis in time to get out."
He also warned that Britain, with its globally-focussed economy, would be
harder hit than the US by the current recession and collapse in world trade.
"Obviously we've both suffered very considerably but ... Britain is more
globally oriented as an economy and the dramatic decline in exports globally
and trade generally following the collapse of Lehman Brothers had dramatic
effects in the financial system of Britain," Mr Greenspan said.
"It's going to take a long while for you [Britain] to work your way through
this."
Road to recovery
In order to prevent the situation arising again financiers and governments
should look to clamp down on fraud and increase capital requirements for banks,
the former central banker said.
Regulations targeting the latter would mean banks would be forced to hold
enough money to cover their normal operations and honour withdrawals.
However despite his belief in a brighter future, the former Fed chief did warn
that the path to recovery should steer clear of protectionism as applying
strict regulations could hamper recent developments that have opened up global
trade.
"The most recent endeavour to re-regulate is a reaction to the crisis. The
extraordinary impact of these global markets is making a lot of financial
people feeling they have lost control.
"The problem is you cannot have free global trade with highly restrictive,
regulated domestic markets."
Historic event
During the interview for BBC Two's The Love of Money series, the former Fed
chief said the current economic crisis was a "once in a century type of event",
and one that he did not expect to witness.
Blamed by some for not doing more to prevent the crisis, Mr Greenspan denied
any responsibility for the problems gripping the global economy.
"It's human nature, unless somebody can find a way to change human nature, we
will have more crises and none of them will look like this because no two
crises have anything in common, except human nature."
Alan Greenspan was interviewed as part of BBC Two's Love of Money series to be
broadcast at 2100 BST on 10, 17 and 24 September.