Greenspan warns of regulatory reaction

Washington -- Former Federal Reserve Chairman Alan Greenspan says more U.S. and overseas banks may end up in government rescue plans.

"There may be numbers of banks and other financial institutions that, at the edge of defaulting, will end up being bailed out by governments," Greenspan said in an article scheduled for publication in Tuesday's Financial Times.

The Financial Times printed highlights of the article Monday.

Greenspan said the economy's "insolvency crisis" will turn around only when home prices finish their downturn and become stable, the Times reported. In his comment on banks, Greenspan mentions the examples of U.S. investment bank Bear Stearns and Britain's Northern Rock.

He called the current downturn in the economy a "once or twice a century event deeply rooted in fears of insolvency of major financial institutions."

Greenspan warned of a regulatory over-reaction, which he said could undermine global share prices, the Times reported.

"If that becomes widespread, globalization could reverse, at awesome cost," Greenspan said.

Copyright 2008 by United Press International.