Financial crisis was an ‘accident waiting to happen’

An unusually high degree of risk-taking across asset classes made recent financial market turmoil all but inevitable, former Federal Reserve Chairman Alan Greenspan said.

“The financial crisis that erupted on August 9th was an accident waiting to happen,” Greenspan said in a speech on the sidelines of the International Monetary Fund and World Bank meetings.

“Credit spreads across all global asset classes had become suppressed to clearly unsustainable levels.”

“Something had to give.”

“If the crisis had not been triggered by a mispricing of securitised US subprime mortgages, it would eventually have erupted in some other sector or market,” Greenspan said.

Greenspan himself has drawn some criticism for cutting US benchmark interest rates to 1 per cent in 2003 and holding them there for a prolonged stretch, which some say helped inflate the US housing bubble.

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