CNBC Press Releases

BARTIROMO: IT'S INTERESTING BECAUSE YOU SAID THE FED COULD NOT HAVE SEENTHIS COMING OR AT A MINIMUM CHANGED WHAT OCCURRED AND YET ON THE OTHER HAND YOU ARE SAYING WE ARE GOING TO SEE FURTHER REGULATION. WHY SHOULD WE CHANGE THE ENVIRONMENT IF YOU ARE SAYING THAT THE FED'S HANDS ARE TIED ANYWAY AND THE FED COULD NOT HAVE CHANGED WHAT OCCURRED IN THAT ENVIRONMENT AND REALLY THE GLOBAL FORCES DID. SECONDLY, SHOULD BEAR STEARNS HAVE BEEN LEFT TO FAIL?

GREENSPAN: LOOK. I'M NOT TALKING ABOUT -- I WANT TO MAKE A DISTINCTION BETWEEN THE REGULATORY PRESSURES THAT OCCUR FROM COUNTER PARTY SURVEILLANCE. I'M NOT ARGUING THAT THE REGULATORS ARE COMING IN TO CHANGE. I'M SAYING THE INVESTORS ARE CHANGING THINGS. IN OTHER WORDS, YOU CAN ONLY GET THE PRICES THAT APPEAR IN THE MARKETS UP TO LAST AUGUST 9 BECAUSE PEOPLE ARE BIDDING THE PRICES UP. THAT IS GONE. THERE IS NO WAY THAT COMMERCIAL BANKS OR INVESTMENT BANKS CAN FINANCE THEMSELVES AS EASILY AS THEY DID IN THE EARLY ENVIRONMENT AND THE RESULT IS THAT IT IS THE INVESTORS WHO ARE INSISTING IF THEY ARE GOING TO PUT MONEY INTO A FIRM THAT THE LEVERAGE BE BROUGHT DOWN.WHAT THE GOVERNMENTS DO WITH RESPECT TO REGULATION IS REALLY IN A CERTAIN SENSE BESIDE THE POINT. IF THE MARKETS JUST WON'T ALLOW INSTITUTIONS TO CONTINUE DOING WHAT THEY ARE DOING AND WHAT HISTORY HAS ALWAYS SAID TO US, WE REGULATORS FROM GOVERNMENT WILL TEND TO FOCUS ON WHERE THE RISKS ARE AS DEMONSTRATED BY THE MARKET PLACE. EVEN IF THERE IS NO CHANGE IN GOVERNMENT REGULATION, THERE IS GOING TO BE MUCH HIGHER CAPITAL REQUIREMENTS IN THE BANKS AND ESSENTIALLY IN THE INVESTMENT BANKS AND OTHER INSTITUTIONS DRIVEN BY MARKET FORCES.

BARTIROMO: WHAT ARE ABOUT THE USE OF DERIVATIVES? IN THE PAST YOU PRAISED DERIVATIVES AS BEING HELPFUL IN TERMS OF SPREADING THE RISK THROUGHOUT THE WORLD IN RETROSPECT. DO YOU BELIEVE THAT WE SHOULD HAVE HAD HIGHER REGULATORY POLICIES IN PLACE OR THE USE OF DERIVATIVES NOW THAT WE HAVE TRILLIONS OF DOLLARS IN CREDIT DEFAULT SWAPS OUTSTANDING?

GREENSPAN: MOST CERTAINLY NOT. CREDIT DEFAULT SWAPS AS A CONCEPT HAVE DIVERSIFIED RISKS OVER THE YEARSAND HAVE BEEN VERY SUCCESSFUL AS DERIVATIVE INSTRUMENTS.THE PROBLEM HAS NOT BEEN THE INSTRUMENTS THEMSELVES, BUT BACK OFF THE PROBLEMS WHICH THEY COULD NEVER SEE TO GET IN HAND WHEN I WAS STILL AT THE FED. THE FEDERAL RESERVE BACK OF NEW YORK HAD TO STEP IN AND GET THEM TO RECOGNIZE THAT THE DEFAULT SWAPS ARE A 21st CENTURY INSTRUMENT AND THE BACK ROOM WAYS OF ORGANIZING THEMSELVES AND GETTING CONFIRMING AS AND TRANSFERS WITH PENCIL AND TELEPHONE.THERE IS OPERATIONAL RISK THAT COULD CREATE PROBLEMS, BUT THE CONCEPT WANT INSTRUMENT ITSELF IN TRANSFERRING RISK IS A VERY VALUABLE PRODUCT BECAUSE WHAT IT DOES IS REDUCES THE RISK OF THE HIGHLY LEVERAGED INSTITUTION WHICH IS LENDERS AND TO THOSE WITH FAR LESS REFERAGE AND CAPABILITY OF TAKING LOSS WHEN IS AND IF THEY OCCUR.

BARTIROMO: QUICKLY AS WE WRAP UP, DO YOUTHINK BEAR STEARNS SHOULD HAVE BEEN LEFT TO FAIL?

GREENSPAN: I THINK AT THE TIME THAT THE SITUATION AROSE AND WHAT WE WERELOOKING AT WAS A BANK-RUN AND I CAN'T SEE ANY WAY IN WHICH SOMETHING OF WHAT WAS DONE HAD TO BE IMPLEMENTED. IT'S THE CENTRAL BANKERS RUNNING INTO THE CRISIS AND IT'S JUST A QUESTION OF WHICH PARTICULAR INSTITUTION OF GOVERNMENT ACTUALLY TAKES THE RISK.

BARTIROMO: WE WILL LEAVE IT THERE. WE KNOW HOW BUSY YOU ARE AND THANK YOU FOR SPENDING TIME WITH US. DR. ALAN GREENSPAN IN WASHINGTON

About CNBC:
CNBC is the recognized world leader in business news, providing real-time financial market coverage and business information to more than 340 million homes worldwide, including more than 95 million households in the United States and Canada. The network's Business Day programming (weekdays from 5:00 a.m.-7:00 p.m. ET) is produced at CNBC's headquarters in Englewood Cliffs, N.J., and also includes reports from CNBC news bureaus worldwide. Additionally, CNBC viewers can manage their individual investment portfolios and gain additional in-depth information from on-air reports by accessing http://www.cnbc.com.

Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site at http://nbcumv.com/cnbc/.

Tools:

PrintEmail

Next Post

Previous PostBack to Main Page