Financial markets, which have been depressed by “fear” not seen since at least the 1930s, are likely to rebound in the next six to 12 months, former Federal Reserve Chairman Alan Greenspan said in a commentary published by The Economist online.
“Markets are being suppressed by a degree of fear not experienced since the early 20th century (1907 and 1932 come to mind),” Greenspan said in the commentary. “Human nature being what it is, we can count on a market reversal, hopefully, within six months to a year.”
Stabilization in home prices, which will allow financial institutions to judge the value of collateral underlying mortgages and mortgage-backed securities, is likely in 2009 and is another “critical piece” to ending the turmoil, Greenspan said. The Treasury’s $250 billion in investments in the equity of American banks has halved the gap between the London Interbank Offered Rate and the overnight index swap rate, an indication of progress, Greenspan said.
