TOPICS > Economy

Greenspan Calls Financial Crisis a ‘Credit Tsunami’

BY Admin  October 23, 2008 at 3:05 PM EST

Alan Greenspan testifies before Congress; AP Photo

“Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,” Greenspan said in prepared testimony.

Greenspan, who headed the nation’s central bank for 18 1/2 years, told lawmakers that he and others who believed lending institutions would do a good job of protecting shareholders are in a “state of shocked disbelief,” according to the Associated Press.

He said that the financial crisis had exposed a flaw in his and others’ free market ideology. Banks and investment firms did not do a good enough job analyzing the risks of the home mortgage market, and some types of derivatives should have been subject to more regulation.

“We
cannot expect perfection in any area where forecasting is required,” he said, according to Bloomberg.
“We have to do our best but not expect infallibility or omniscience.”

Greenspan was the lead witness at a House hearing called to question past key financial players about what they felt caused the gravest financial crisis since the 1930s.

Meanwhile, the number of workers filing unemployment claims rose by 15,000 last week, according to government data released Thursday. The larger-than-expected jump — to 478,000 in the week ended October 18 from 463,000 the week before — is one more sign of a weakening labor market amid this fall’s economic crisis.

Several large companies also announced layoffs this week, including Merck (7,200 jobs), National City bank (4,000 jobs) and Yahoo (1,500 jobs). And in September, there were more mass layoffs in which companies cut 50 or more jobs than in any month since September 2001, according to a Labor Department report released Wednesday.

Other companies are imposing hiring freezes in the face of economic uncertainty, reducing the number of available positions for job-seekers.

“The customers I’ve spoken to are all living under a sense of fear,” Paul Villella, chief executive of the Reston, Va. Staffing company HireStrategy, told the Washington Post. “They have a very limited visibility into the future and have a great degree of uncertainty, so they just want to sit steady and be conservative in hiring.”

Such decisions aren’t a direct result of tightening credit, Villella told the paper. Instead, he said, they reflect the fact that companies uncertain about their customers’ economic future want to wait to make hiring decisions until they feel more confident.

The construction and manufacturing sectors have been losing jobs for more than a year, but other industries have begun to feel the pinch more recently. In the three months ending in September, retailers lost 87,000 jobs, employment services lost 100,000 jobs and the leisure and hospitality industries lost 51,000 jobs, according to the Washington Post.