Alan Greenspan, former chairman of the U.S. Federal Reserve, said forces behind current market turmoil are ‘identical’ to previous economic upheavals, including the 1987 stock-market crash.

“The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987,” Greenspan said Thursday in a speech in Washington. The remarks, published in The Wall Street Journal, were confirmed by Greenspan's spokeswoman Lisa Panasiti.
Borrowing costs around the world rose last month as a U.S. housing slump led to an increase in loan delinquencies among borrowers with a patchy credit history. That has clouded the outlook for economic growth, according to the Organization for Economic Cooperation and Development, which said this week that expansion prospects are “less buoyant.”
Central banks have pumped more than $400 billion into financial markets to ease cash shortages and the European Central Bank and Bank of England Thursday left interest rates unchanged, seeking to calm markets. Greenspan's assessment may even be too positive, said Paul Mortimer-Lee, head of market economics at BNP Paribas SA in London.
“There are some parallels I think with '87, but this is worse because the economy starts off from a weaker footing, whereas the tightening cycle was just beginning then,” Mortimer- Lee said in an interview Friday. “The stock sell-off in '87 was a bit of a financial panic. This is much more imbedded in the weakness in the housing sector, and that's why it's more worrying.”
---------Growth forecast
The ECB Thursday lowered its forecast for expansion in the euro region in 2007 to about 2.5 percent from about 2.6 percent and a shelved plan to raise interest rates. The Bank of England said it's trying to determine whether higher credit costs will harm the economy. The U.S. Federal Reserve will probably lower the benchmark federal funds rate at its policy meeting Sept. 18, futures trading shows.
The U.S. economy unexpectedly lost jobs in August for the first time in four years, the Labor Department said Friday. The drop of 4,000 payrolls compared with economists' prediction for an increase of 100,000, according to the median of 88 estimates in a Bloomberg survey.
Treasury Secretary Henry Paulson said the decline was “not totally surprising” and he expects the economy to continue to grow in the second half of the year. He also said there were some “similarities” in the current market turmoil to past crises, such as in 1998, when hedge-fund Long Term Capital Management LP collapsed.
“When investors reprice risky assets, it takes a while for confidence to return,” he said in an interview in Washington.
Greenspan, who was Fed chairman for 18 years before retiring in 2006, said the “fear that's driving the market is far more potent than the euphoria that fuels expansion and creates bubbles.”
(Source: Bloomberg)