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Greenspan Warns on Dangers Of Growing Acceptance of Risk

Contributed by mm | August 26, 2005 11:29 AM PST





Greenspan definitely saw some ominous signs.

From Wall Street Journal:

"What they perceive as newly abundant liquidity can readily disappear," Mr. Greenspan said in a speech at an annual conference of central bankers. "Any onset of increased investor caution" could cause those prices to drop and force investors to liquidate assets to repay debts. "This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums."

The comments amounted to one of the strongest warnings Mr. Greenspan has delivered about financial market risks in years. Ever since his speech about "irrational exuberance" among investors caused markets to swoon in 1996, Greenspan has been cautious about the way he has phrased such warnings. In 1999, at the same central bankers' conference, he warned that the rise in stock prices up to that point was both inexplicable and "extraordinary." The Dow Jones Industrial Average peaked a few months later.
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