WASHINGTON, July 16: Federal Reserve Chairman Alan Greenspan said on Tuesday the US economy was set to emerge from a welter of corporate crimes with better-than-anticipated growth.
As the business world was released from the grip of an “infectious greed” fed by the speculative drive of the late 1990s, new misdeeds were likely to taper off, the powerful Federal Reserve boss said.
The economy, meanwhile, was beating back the blows of plunging stock prices, a retrenchment in business investment, and the September 11 attacks, he said.
Greenspan presented the Federal Reserve’s monetary policy report, which forecast economic growth of 3.5 to 3.75 per cent this year from the fourth quarter of 2001, to a Senate banking committee.
Just five months earlier, the Federal Reserve had forecast 2.5 to 3.0 per cent expected earlier. But final demand — consumer spending, business investment and exports, would be critical, Greenspan cautioned.
“While final demand has been increasing, the pace of forward momentum remains uncertain,” he said.
“The effects of the recent difficulties will linger for a bit longer but, as they wear of, and absent significant further shocks, the US economy is poised to resume a pattern of sustainable growth,” Greenspan said.
The number of new corporate misdeeds is likely to diminish sharply, he forecast.
“With profitable opportunities for malfeasance markedly diminished, far fewer questionable practices are likely to be initiated in the immediate future,” Greenspan said.
Corporate checks and balances, which once had worked reasonably well, broke down during the rapid expansion in stock market values in the late 1990s, which had arguably fed avarice, he said.
“An infectious greed seemed to grip much of our business community. Our historical guardians of financial information were overwhelmed.”
Too many company chief executives had sought to harvest the stock market boom, the Federal Reserve chairman said.
The “highly desirable” spread of shareholding and of stock options — a security allowing the holder to buying a stock at a set price in the future — had lured them into boosting share prices, Greenspan said.
“Perhaps the recent breakdown of protective barriers resulted from a once-in-a-generation frenzy of speculation that is now over,” he said.
“But even if the worst is over, history cautions us that memories fade. Thus, it is incumbent upon us to apply the lessons of the recent period to inhibit and recurrence in the future.”—AFP
