Greenspan Talk Doesn't Roil Markets

The Associated Press
Tuesday, March 13, 2007; 5:08 PM

WASHINGTON -- Alan Greenspan had a lot to say Tuesday about financial market turmoil, but by confining his observations to past crises, he made sure he didn't roil markets like he did two weeks ago.

Greenspan was one of a galaxy of financial superstars appearing at a Treasury Department conference to discuss whether the regulations passed in the wake of the 2000 market scandals had gone too far.

In his comments, Greenspan stressed the need to make sure that whatever was done did not take away market flexibility.

He said it was this flexibility that allowed the economy to withstand the big shocks of the 1987 market crash and the turbulence that occurred following the terrorist attacks in Sept. 11, 2001.

"We went through the 1987 stock market crash ... and GDP never went down," Greenspan said, referring to the huge plunge in stock values that occurred in October 1987 just weeks after Greenspan had taken over as chairman at the Fed.

He said the market problems from the 2001 attacks in New York were over in a matter of weeks because of the increased flexibility markets have now. "Thirty years ago, that never would have happened," he said.

Two weeks ago, Greenspan's comments about the possibility of a recession occurring at the end of this year contributed to a 416-point fall in the Dow Jones industrial average.

The Dow had another big losing day on Tuesday, falling by 242.66 points, the second biggest drop of the year. But this decline was not driven by anything Greenspan said but rather investors worries about the subprime mortgage market.

During his appearance Tuesday, Greenspan talked about past market crises but not the most recent turmoil and he made no forecasts about the possibility of a recession.

Greenspan did put forward a proposal on how to reduce the growing inequality of incomes in the United States _ admit more skilled immigrants into the country.

The former Fed chief said that increasing the number of immigrants with sought-after skills would increase the labor supply of these workers in the United States and hold down the wage gains of all workers with these skills.

In that way, Greenspan said, the gap between skilled and unskilled workers would be lowered. He said it was critical to find ways to address growing income inequality in the United States.

Income inequality "is where the capitalist system is most vulnerable," Greenspan said. "You can't have the capitalist system if an increasing number of people think it is unjust."

© 2007 The Associated Press