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Alan Greenspan Says Us Banks Must Raise 'large' Amounts

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Mr Greenspan, who led the American central bank during the explosion of credit which is in large part responsible for the current crisis, also believes that the systemic problems in the US housing market remain a threat.

Although he believes that "things have unquestionably improved" in the US and global economy alike, his view that there are still serious downside risks to the economy is at odds with some other major commentators.

For weeks, senior officials from the Obama administration, including the President himself, have been at pains to stress at every opportunity that the US economy is on the turn.

However, such rallying cries have not been supported by recent economic data and the Federal Reserve earlier this week said it believes the US economy will contract by 2pc this year, rather than the 1.3pc first estimated.

Mr Greenspan, who has no formal ties with the administration, appears to be more in step with his former central bank colleagues. Of the continued problems in the housing market, he said: "We're on the edge and if this doesn't get resolved quickly I'm worried."

The septuagenarian economist warned that "until the prices of homes flatten out we still have a very serious potential mortgage crisis".

On the banking sector, Mr Greenspan believes that the recent bout of fundraising as a result of the Treasury's stress tests has not been enough.

"There is still a very large unfunded capital requirement in the commercial banking system in the United States and that's got to be funded," he said.

His comments weighed heavily on US markets, with the Dow Jones Industrial Average down 151.41 points – or 1.8pc – at 8,270.63 in late trading.

Investors were also concerned that the US may be next in the firing line after Standards & Poor's sounded a warning about Britain's Triple-A credit rating.

Sentiment wasn't helped by data showing the number of people claiming unemployment benefit hitting a fresh high for the 16th consecutive week.

Greenspan helped to create this mess so one would guess he knows how bad it is because he let if happen.

I suppose the Fed needs to print some more cash to fund the unfunded liabilities.

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