Financial crisis 'like a tsunami'

Former Federal Reserve chairman Alan Greenspan has called the recent turmoil in the global financial markets a "once in a century credit tsunami".

Speaking before Congress, Mr Greenspan, who stood down as Fed chairman in 2006, said the crisis had left him "in a state of shocked disbelief".

He added that recovery in the US housing market was "many months" away.

However critics said Mr Greenspan could have boosted regulation of the markets to help prevent the crisis.

Regulation

Mr Greenspan made the comments to the House of Representatives Committee on Oversight and Government Reform.

The sickness afflicting the global financial economy has entered a new and worrying phase Robert Peston, BBC business editor Read Peston's Picks

Committee chairman Henry Waxman, a Democrat, suggested that Mr Greenspan had added to the problem by rejecting calls for the Fed to regulate the sub-prime sector and some complex, risky financial products.

"The list of regulatory mistakes and misjudgements is long," Mr Waxman said.

"Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite," he added, saying that the mantra became "government regulation is wrong".

One of the main criticisms against Mr Greenspan was that he left interest rates too low for too long, thereby fuelling the housing boom - which later turned out to be unsustainable.

However the former bank boss said he had made a "partially" wrong decision in thinking that relying on banks to use their self-interest would be enough to protect shareholders and their equity.

He acknowledged that his approach had had a "flaw" that had been shocking "because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.''

Government efforts

Mr Greenspan's comments come as significant uncertainty remains in global markets, amid fears that key economies have already entered a recession.

Some share markets and currencies have been especially volatile, prompting intervention by governments to prop up banks and boost the financial sector.

Recent developments include:

• Russia has moved to boost its currency in the wake of a sharp slide in oil prices and declines in foreign investments. In the past week gold and foreign reserves are down $15bn (£9.3bn)
• French President Nicolas Sarkozy on Thursday mooted setting up a state-run investment fund to help protect national firms and aid small firms in difficulty
• Sweden's central bank tried to boost its economy by cutting interest rates by half a percentage point to 3.75% and said it planned to make further cuts within six months
• Hungary unexpectedly increased its interest rate by three percentage points to 11.5% on Wednesday in a bid to boost its currency, the forint

Earlier, some Asian indexes saw sharp falls, as investors worried about the prospect of a global recession.

South Korea's Kospi index was down 7.4%, its lowest close since July 2005, while Hong Kong's Hang Seng index was down 4.7%, at its lowest level since April 2005.

However, after a volatile session, the London FTSE 100 index ended up 1.16%, while France's Cac 40 rose 0.38% and Germany's Dax fell 1.13%.

Taking flight

South Korea is one of a number of countries that has recently seen a substantial withdrawal of capital as worried investors take their money out.

The phenomenon, which is also affecting others nations including Hungary, Iceland and Pakistan, represents a new and worrying phase of the financial crisis according to the BBC's business editor Robert Peston.

He says that we are seeing a massive flight of capital out of economies perceived to have been living beyond their means - either because they have a substantial reliance on foreign borrowings or because they are net importers of good and services, or both.