LONDON : The former Federal Reserve chairman Alan Greenspan suggested on Monday that the global credit crisis triggered in August might be coming to an end. At a conference on the world economy, British Prime Minister Gordon Brown meanwhile stressed the need for financial reforms that would prevent such a crisis occurring again.
Addressing business leaders, Greenspan said: "Is this ... credit crisis about to be over? Possibly."
The former Fed chief pointed to the re-emergence of trading in risky bonds in the United States as a sign that the global credit squeeze was easing.
He also reiterated his belief that the abrupt upheaval in world financial markets caused by lending woes "was an accident waiting to happen."
Greenspan told business leaders: "If it had not been triggered by the large loss suffered on American securitised sub-prime mortgages, it would have eventually surfaced as a rupture of some other financial product in the market."
Two months ago a credit squeeze emerged when banks around the world began to be reticent about lending to each other.
This was caused by problems in the US housing market, particularly in the "sub-prime" or high-risk sector, which landed many banks and investment funds with large losses.
Banks and investment funds had bought mortgage-backed securities, complicated financial instruments whose value was linked to US home loans.
When large numbers of US home owners began defaulting, the value of these securities plummeted and global money markets dried up as banks became nervous about lending to each other.
British Prime Minister Gordon Brown, whose government has come to the aid of British bank Northern Rock, told the conference that the time had come "for all financial leaders to recognise and work for the changes in the world financial system that are now needed."
At the same time, however, he said it would be wise "to refuse, even in the wake of difficulties, to make unnecessary changes" such as heavy-handed regulation.
Brown, who was Britain's finance chief for a decade before turning prime minister in June, said his Labour government would continue to respond with "the same calm vigilance" that he said it had demonstrated over recent weeks. - AFP/de
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