Alan Greenspan Quotes

One of the most important causes of economic crises is “running liabilities”, or short term debt that the government does not insure. The U. S. financial sector holds trillions of dollars of such debt, including uninsured bank deposits and the short-term liabilities of other financial institutions, such as overnight loans…. Amongst the potential causes of the next crisis, the massive amount of short-term debt ranks as the most probable.

The fundamental problem with banks is what it's always been: they're in the business of banking, and banking, whether plain vanilla or incredibly sophisticated, is inherently risky.

Debt, we've learned, is the match that lights the fire of every crisis. Every crisis has its own set of villains - pick your favorite: bankers, regulators, central bankers, politicians, overzealous consumers, credit rating agencies - but all require one similar ingredient to create a true crisis: too much leverage.

Equity is the cushion that protects financial institutions from unexpected changes in the value of their assets. The greater the leverage, the smaller the losses required to wipe out a company's equity, leaving it without enough money to repay the people who hold its debt.

Investment banks manage to go bankrupt through their investment-banking activities, commercial banks manage to go bankrupt through their commercial-banking activities.

At the heart of banking is a suicidal strategy. Banks take money from the public or each other on call, skim it for their own reward and then lock the rest up in volatile, insecure and illiquid loans that at times they cannot redeem without public aid.

Financial firms believed that if a crisis developed, the insatiable demand for exotic [financial] products would dissipate only slowly. They were mistaken.

Banks are employing risky derivatives strategies to goose up returns….the interbank market could freeze up, and one could well have a full blown financial crisis.

If investors avoid the Treasury market, we could be unable to pay off maturing securities, which would mean an immediate default. Market participants generally agree that even a brief default would create potentially catastrophic risks to the financial system, like the meltdown of 2008.

Given the extent of the exposures of major banks around the world to A.I.G., and in light of the extreme fragility of the system, there was a significant risk that A.I.G.'s failure could have sparked a global banking panic.

The real danger with debt is what happens if lots of people decide, or are forced, to pay it off at the same time.

It's hard to tell which assets will be toxic. The best way to ensure that only shareholders and banks feel it is have adequate capital.

Most of the time, your risk management works. With a systemic event such as the recent shocks following the collapse of Lehman Brothers, obviously the risk-management system of any one bank appears, after the fact, to be incomplete. We ended up where banks couldn't liquidate their risk, and the system tended to freeze up.

Most companies can survive even if their debt ratings are lowered below investment grade, although they will have higher borrowing costs.

If nobody can sell mortgage-backed securities based on trillions of dollars of unpayable instruments, there's a lot less risk in the overall system.

Everyone failed to appreciate that our sophisticated, hypermodern, highly hedged, derivative-based financial system—how ultimately fragile it really was.

Compelling large banks to hold more capital reduces their risk of failure, but as the last financial crisis [the Meltdown of 2008] demonstrated, during a wide-spread panic, investors and lenders lose all faith in the values banks have assigned to their assets, and many mistrust the banks that claim to have enough capital.

There isn't a bank in the world that could withstand a run. They all borrow short and lend long, regardless of what they say.

The failure of one regional bank, assuming it is following a traditional model, will not threaten the entire system.

Complexity and interconnectedness matter as much as size in assessing risk in banking.

A bank needs models to measure risk. The problem, however, is that any one bank can measure its risk, but it also has to know what the risk taken by other banks in the system happens to be at any particular moment.

We judged that a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy, with lower equity prices, further downward pressure on home values, and less access to credit for companies and households.

Leverage is great when it works, and when it doesn't work, it creates a lot of issues. So I think if you limit the amount of leverage that people can borrow, or that banks can borrow, I think you'll find that you'll have a lot less issues going forward.

I want to see an end to sovereign risk questions over Australia.

We've always been modestly leveraged, and we've never believed in a great deal of leverage on either our private equity business or on our investment banking business. And I think it really goes back to my uncle and dad growing up in the Depression and just seeing what happened to people who were overly levered.