'Credit Tsunami’ Means Jobless Spike: Greenspan

Former Federal Reserve Board chairman Alan Greenspan said yesterday that the U.S. economy is going through a “once-in-a-century credit tsunami” which is sure to lead to a “significant rise” in unemployment.

Greenspan, in testimony prepared for delivery to the House Committee of Government Oversight and Reform, echoed current Fed chairman Ben Bernanke in saying a stabilization of housing prices is a prerequisite for ending the crisis and setting the stage for economic recovery, but said that is “still many months in the future.”

He recalled warning about the “underpricing of risk” back in 2005, but admitted the resulting financial crisis turned out to be “much broader than anything I could have imagined.” He said he was in “a state of shocked disbelief” about the inability of banks to regulate themselves.

Greenspan was not entirely negative, however, citing signs that the effect of the $700 billion Troubled Assets Relief Program is “already being felt.”

He said “this crisis will pass, and America will reemerge with a far sounder financial system.” In the meantime, he suggested, things could get rougher for the U.S. economy.

— Market News International

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