More banks and financial institutions could end up being bailed out by governments before the credit crisis is over, Alan Greenspan, the former Fed chairman, warns in an article in Tuesday’s FT. However, he cautions that a heavy-handed regulatory response would do more harm than good because it would depress global share prices. He also warns that governments, already troubled by inflation, might try to reassert their grip on economic affairs. “If that becomes widespread, globalisation could reverse, at awesome cost,” he says. Describing it as a “once or twice-a-century event deeply rooted in fears of insolvency of major financial institutions”, Greenspan says the current crisis will end only when US home prices begin to stabilise.
