Greenspan: Predictions from the Crypt

If you have had a hard time swallowing the direct plain English of the modern Federal Reserve heads, help is on the way.  Former Federal Reserve Chairman Alan Greenspan is speaking to the House Government Oversight and Reform Committee today.  The committee is holding a hearing titled, “The Financial Crisis and the Role of Federal Regulators” at 10:00 AM EST in Washington D.C.

Greenspan is calling this current situation a once in a century credittsunami that will take many months to improve.  He believes that higherunemployment and soft consumer spending are essentially unavoidable.He also is in shocked disbelief that lending institutions did so littleto protect themselves and their shareholders.

He also noted that the $700 billion rescue package is adequate and that the impact was already being felt in markets.  In hisspeech, he does not address the criticism he has received as being atfault the current crisis.

In fact, he will say the he cannot "see how we can avoid a significant rise in layoffs and unemployment."

He believes this will result in lower consumer spending as householdstry to divert an increasing part of their incomes to replenish depletedassets.  This won’t just be 401K’s and home values.

Greenspan is assuring the committee that this crisis will pass and thatthe country will ultimately end up with a more sound financial system.But it comes with a price and won’t come quickly.

Greenspan will say that the ultimate stabilization of home prices isalso a necessity for this to come about.  Unfortunately he calls thisstabilization (at a minimum) being many months away.

Here are Greenspan’s full prepared remarks. You can see a live video of the committee testimony here.  Also, former Treasury Secretary John Snow and current SEC Chairman Chris Cox will testify today.

Jon C. Ogg
October 23, 2008