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major “market distortions” ex-Federal Reserve chief Alan Greenspan wrote in yesterday’s Financial Times.
The former bank chief slammed the Dodd-Frank act, which imposes wide-ranging and strict new checks on financial institutions, for failing to “capture the degree of global interconnectedness.”
“The act may create the largest regulatory-induced market distortion since America’s ill-fated imposition of wage and price controls in 1971,” warned Greenspan, who was Fed boss from 1987 to 2006. The economist has been widely accused of having encouraged the recent US housing bubble that led to the recent financial crisis, due to his low interest rate policy.
But Greenspan, in his article, pointed out several areas where he believed the regulation was hindering economic recovery.
Greenspan argued that firms such as Ford Motor Credit were struggling to pull out of the slump as they could not meet credit rating requirements needed to raise funds.
He also said that new rules on proprietary trading unfairly punished US banks.
He warned that a “significant proportion” of the foreign exchange derivatives market could leave the US and that rules to limit bloated Wall Street bonuses would fail.
Top bankers would simply leave to work for their major “clients”, he wrote.
“The problem is that regulators, and for that matter everyone else, can never get more than a glimpse at the internal workings of the simplest of modern financial systems,” Greenspan wrote in the business broadsheet.
“In moving forward with regulatory repair, we may have to address the as yet unproved tie between the degree of financial complexity and higher standards of living,” he added. – AFP.