Sunday, February 03, 2008


Greenspan says FED is Completely Irrelevant

Former Chair Greenspan doubts 'major' Fed role as risk reprices

Former U.S. Federal Reserve Chairman Alan Greenspan is seen in this Oct. 1, 2007 file photo. Greenspan said the likelihood of an American recession remained 50 percent, reiterating in comments released Wednesday that there were “ few signs ..

Friday, February 1, 2008
By Alex Nicholson and Steve Matthews, Bloomberg

MOSCOW/ATLANTA -- Former Federal Reserve Chairman Alan Greenspan said he doubted there is a major role for central banks in responding to the shift in the "pricing of risk" after last year's credit collapse.

"Yield spreads have opened up and I think they will probably continue to open up as the adjustment back to a more sensible pricing of risk emerges," Greenspan said at an investment forum in Moscow, where he spoke via a satellite. "I doubt very much that there is a major role for central banks here."

Spreads, or the premiums investors demand for securities such as corporate bonds and asset-backed debt, have widened in the aftermath of the U.S. housing slump and surging foreclosures. Policy makers at the Fed, European Central Bank and other central banks have aimed at keeping financial markets stable, while not shielding investors from taking losses.

Greenspan didn't address the outlook for the U.S. economy or interest rates in his remarks. He said in an interview with Germany's Die Zeit, a transcript of which was released Wednesday, that the odds of a U.S. recession are "50 percent or better." A fiscal-stimulus package "probably" couldn't prevent a recession, he added.

"Global forces can now override most anything that monetary and fiscal policy can do," he said in the interview, adding it was "absolutely" more difficult for the Fed to react to financial-market turmoil than was the case 20 years ago. "The resources of central banks relative to the size of global forces have markedly diminished."

Instruments such as subprime mortgage-backed securities generally have been a "very significant plus in this global world and will continue to be so," Greenspan said. "A number of these have failed. They have failed because they were nontransparent."

Greenspan, 81, left the Fed in January 2006 after almost two decades at the helm. He then returned to his role as a private-sector economic forecaster, speaking at conferences and consulting for clients such as Deutsche Bank AG.

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