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Greenspan: Markets Will Recover Soon

By    |   Monday, 22 Dec 2008 10:02 AM

Former Federal Reserve Board Chairman Alan Greenspan says financial markets will escape the negative psychology that is keeping them down by this time next year.

“Markets are being suppressed by a degree of fear not experienced since the early 20th century (1907 and 1932 come to mind),” Greenspan wrote in a commentary on The Economist Web site.

“Human nature being what it is, we can count on a market reversal, hopefully, within six months to a year.”

A bottoming of home prices will be necessary to spark the rebound, Greenspan says. “Those prices are likely to stabilize next year,” he writes.

That stabilization in turn will aid financial institutions in valuing their toxic securities backed by mortgages. “That should help stabilize their stock prices,” Greenspan explains.

“The eventual partial recovery of global equities, as fear inevitably dissipates, should do the rest.”

Greenspan prefers recapitalization of banks over fiscal stimulus. “Temporary public capital injections into banks would facilitate this process and arguably provide far more benefit per dollar than conventional fiscal stimulus,” he writes.

Greenspan says the government needs to add more capital than it already has.

“While helpful, the Treasury’s $250 billion goes only partway towards the levels required to support renewed lending,” he writes.

Others share his view of stocks. “If you believe the world doesn't end that often, and you believe good companies don't disappear, I think it is actually a good time to invest,” Brian Rogers, chairman of T. Rowe Price, told USA Today.

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Former Federal Reserve Board Chairman Alan Greenspan says financial markets will escape the negative psychology that is keeping them down by this time next year. “Markets are being suppressed by a degree of fear not experienced since the early 20th century (1907 and 1932...
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2008-02-22
Monday, 22 Dec 2008 10:02 AM
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