No 'Irrational Exuberance' in Stocks Now: Greenspan

Although blue-chip stocks are hitting all-time high after all-time high, former Fed Chairman Alan Greenspan told CNBC Friday that "irrational exuberance" is the last term he'd use to describe today's market.

Greenspan said in a "Squawk Box" interview that stocks by historical standards are "significantly undervalued" even considering the recent moves higher. He added that the payroll tax increase didn't dent spending because of rising asset prices.

Addressing the future of low interest rates — which the current Fed has engineered — he said, "The markets will change first and then we will become unaddicted [to low rates]. It always happens that way and I think it's going to happen that way again."

Greenspan coined the phrase "irrational exuberance" in 1996, when he was asked a question about soaring stocks at that time. The year 1996 was coincidentally the last time the Dow Jones Industrial Average had its last 10-session winning streak.

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Blue-chips will try to make it 11 in a row on Friday. That would be the first such run since late 1991 into 1992. And whether this makes it more or less likely, the Dow has closed higher every Friday so far this year.

Meanwhile, the broader market measure S&P 500 Index is just a couple points away from its all-time closing.

On banks and the concept of "too big to fail," he argued that it's the most important regulatory issue of our time, saying the problem is "getting worse, not better." But he added that the Dodd-Frank Wall Street Reform Law was based on a faulty structure and he doesn't think it will be fully implemented.

(Read More: CNBC Explains: Dodd-Frank Act)

To help protect against failure, Greenspan said he would prefer to see a higher level of bank capital on an ongoing basis. But if push came to shove, banks should be allowed to fail "go through the standard Chapter 11-type of process of liquidation, and allow the markets to adjust accordingly." He pointed out, "That has worked for a very long time."

(Read More: JPMorgan, Goldman Sachs Flagged in Fed's Stress Test Review)

He said banks should not be forced to go back to a world in which commercial banking and investment banking were separate. "The system is getting consistently more complicated as it needs to as the economy get sufficiently more complex. So the breaking up banks in that respect doesn't make any sense."

"[But] If there was not other way to eliminate the 'too big to fail' problem," he continued, "I would be in favor of breaking up the banks."

On housing, Greenspan said, "Home prices are moving up. In fact, they're moving up a little bit faster than I think the data show largely because the data are delayed."

He added, "A goodly part of the seeming strength that we're seeing in the economy very recently is coming from both the stock market and home prices."

By CNBC's Matthew J. Belvedere; Follow him on Twitter @Matt_SquawkCNBC