Tags: greenspan | public | bailout

Greenspan: Public Bailouts Necessary

Tuesday, 12 Aug 2008 11:19 AM

Former Federal Reserve Chairman Alan Greenspan believes that the current crisis on Wall Street requires a "standby panel" appointed by Congress to mop up the mess.

Such a panel, he proposes, would work much like the Resolution Trust Corporation created to clean up the S&L mess of the 1980s, when more than 2,000 banks failed. Greenspan served on the board of the RTC.

This surprising change of heart appears in a new epilogue to the paperback version of Greenspan's memoir of his 18 years running the Fed, titled "The Age of Turbulence." Portions of the epilogue were obtained in advance by The Economist magazine.

Greenspan, a lifelong libertarian who has publicly opposed government involvement in markets, now says that such a panel should be able to take control of any financial institution if its failure threatens the economy.

The panel Greenspan proposes would be empowered to bail out creditors, despite the "moral hazard," the risk that future investors would take bigger risks knowing that a publicly finance bailout would back them up.

Greenspan writes in the epilogue that such a panel operating transparently would be better than how the Bear Stearns bailout was done, "circuitously through the central bank."

Many critics of the former Fed chair have pointed to his Fed's decision to hold interest rates down for long periods as central to the atmosphere that fueled the dot-com disaster and, ultimately, the home mortgage bubble of today.

Nevertheless, Greenspan now says cleaning up the aftermath is and should be a public burden.

"Our country has long since abandoned the notion that we should leave crises to be resolved solely by the marketplace," Greenspan writes.

"The critical need is to formalize the procedures improvised in the case of Bear Stearns. This should ensure that in the future, government financial assistance to lending institutions does not impact the Federal Reserve's balance-sheet and monetary policy."

© 2017 Newsmax. All rights reserved.

   
1Like our page
2Share
StreetTalk
Former Federal Reserve Chairman Alan Greenspan believes that the current crisis on Wall Street requires a "standby panel" appointed by Congress to mop up the mess.Such a panel, he proposes, would work much like the Resolution Trust Corporation created to clean up the S&L...
greenspan,public,bailout
313
2008-19-12
Tuesday, 12 Aug 2008 11:19 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved