Page last updated at 09:40 GMT, Friday, 28 September 2007 10:40 UK

Greenspan: 'We saw credit risks'

Alan Greenspan
Mr Greenspan left the Federal Reserve in January 2006

The former head of the US Federal Reserve has denied that regulators failed to foresee the problems which caused the global credit crunch.

Alan Greenspan said they had not acted on concerns about complex and risky financial deals because only very wealthy people invested in them.

In an interview with BBC Radio 4, he also said that he was increasingly pessimistic about the world economy.

But Mr Greenspan said the risk of recession was "still less than 50-50".

However, he added: "It's still less optimistic than one would like."

'Largest culprit'

The credit crunch has brought havoc to global markets, and hit the UK with the crisis around Northern Rock.

One of the key causes was the bundling together and selling of debt from sub-prime mortgages, which subsequently saw high levels of missed payments.

Institutions which were stung by this then became less keen to loan money elsewhere, resulting in a tightening of credit.

"We did know what was going on and the reason we didn't stop them was that to a large extent these types of questionably egregious actions are taken by people who have their own money invested," he said.

"Hedge funds, who are presumably the largest culprit of all of this, are organisations in the US in which wealthy investors invest.

"I must admit that I do not have considerable concern about their net worth going from 40 million to five million, which in many cases is what's happened."

Mr Greenspan also predicted that the era of low inflation was coming to an end.

"I'm not really able to pinpoint the time but I'm reasonably confident that the inflation tranquillity that we have experienced throughout the world actually for the last 20 years is not something we can hope to readily replicate as we move into the future."

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