Greenspan Before Congress
In a statement to the House Oversight Committee former Federal Reserve Chairman Alan Greenspan stated that the current financial crisis is a “once-in-a-century credit tsunami” which will have a severe economic impact on the nation’s economy and will drive unemployment higher. Greenspan also stated that the current financial crisis had “turned out to be much broader than anything that I could have imagined.” The current economic meltdown has affected interbank Forex markets and the rates charged for interbank lending.
Greenspan, John Snow, and Christopher Cox Testify
Greenspan was called to testify by the committee along with former Treasury Secretary John Snow and Securities and Exchange Commission Chairman Christopher Cox. Committee chairman Henry Waxman (D-Calif.) said that the Federal Reserve, the Securities Exchange Commission, and the Treasury Department had all contributed to the current financial crisis. In a strongly worded statement Waxman said, “The list of mistakes is long and the cost to taxpayers is staggering, our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong. The market is “infallible.”
Greenspan Places Blame on Subprime Mortgages
In his testimony before the committee Greenspan blamed the crisis on heavy demand for securities backed by subprime mortgages by investors who never thought that the housing market would crash. Greenspan said that for the crisis to end stabilization in home prices is necessary and that it would take many months for this to happen. Greenspan gloomily predicted, “Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment. Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.”
Greenspan and Bush Administration Criticized
Greenspan predicted that when home prices stabilize the credit markets should begin to thaw and renew investor confidence. Greenspan also said that government is correct to aggressively proceed with efforts to support the financial sector of the economy and also thought that the $700 billion dollar bailout is adequate to move markets forward. Some blame Greenspan and the Bush administration for ignoring warning signs and stubbornly believing that the market is always right and regulation is not an appropriate government function. Greenspan served during a period of relative stability and interbank forex markets were profoundly affected by the actions of the Federal Reserve.
Greenspan placed the blame for the current crisis on over eager investors who did not worry that the boom in home prices might come to a crashing halt. Greenspan’s critics believe that earlier in the decade he left interest rates too low spurring an unsustainable housing boom. The hearing got contentious as lawmakers who are already angry about having to vote for the politically unpopular bailout bill searched for answers to what went wrong. Holding hearings close to an election is unusual but chairman Waxman said the crisis was so serious that Congress could not wait until a new administration arrives in January to find out “what went wrong and who should be held accountable.”
Recession, the US Dollar and Interbank Forex
On Forex markets the US dollar has been doing surprisingly well but many analysts believe that if the US enters a recession all bets are off for the dollar. Of course savvy Forex investors and traders will be watching the US economy closely for any signs of trouble and will invest accordingly. The Forex markets will remain the largest in the world and will continue to offer alert investors plenty of opportunities. The actions of the Fed could affect interbank Forex exchanges well into the future.
