PARIS (AFP) — Nobel Prize laureate Joseph Stiglitz said Monday the crisis gripping financial markets would pose no "short-term systemic risk" as he took a swipe at former US Federal Reserve Chairman Alan Greenspan.
Stiglitz, awarded the Nobel Prize for economics in 2001, told AFP the turmoil sparked by the collapse of US investment bank Lehman Brothers should prove to be less serious than the 1929 US stock market crash that led to the Great Depression.
"The general view is that we have instruments, monetary and fiscal policy, that we know how to prevent another Great Depression," he told AFP.
However, Stiglitz, a former chief economist at the World Bank and long-standing critic of the International Monetary Fund, cautioned that "knowledge is not always translated into actions."
He argued that during the Asian financial crisis of 1997-8 the "IMF had the knowledge how to prevent Indonesia from going into depression but took measures that actually led it into depression."
In the current climate, "the widespread belief is that the (US) Fed and Treasury did make some examination of the risks before taking the decision not to bail out Lehman.
"So we can be confident there is no short-term systemic risk," he added, although he nonetheless criticised as arbitrary a decision to save another US investment giant, Bear Stearns in March, but not Lehman.
Stiglitz was reacting to a comment from Greenspan that the current crisis "is a once-in-a-half-century, probably once-in-a-century type of event."
"I think it is quite remarkable," Stiglitz said, that Greenspan "is largely responsible for these problems and I don't think he takes full credit for his lack of regulation" during his tenure at the Federal Reserve, 1987-2006.
Stiglitz that it was likely the current turbulence "will contribute to a real slowdown (but) not to a real crisis, that is, a failure of a large number of financial institutions."
While the crisis "will spread and is spreading" internationally, he maintained, the United States would be "in a much worse situation" if it had to absorb "all those losses" stemming from the meltdown on the sub-prime -- high risk -- mortgage market.
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