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Strategies & Market Trends : Cents and Sensibility - Kimberly and Friends' Consortium -- Ignore unavailable to you. Want to Upgrade?

To: $Mogul who wrote (97024)	4/14/2000 4:26:00 PM
From: puborectalis	Respond to of 108040

Greenspan on risk management Central bank can't always bail us out By Rex Nutting, CBS MarketWatch Last Update: 2:37 PM ET Apr 14, 2000 Economic Preview Bond Report WASHINGTON (CBS.MW) -- On a day when uncertainty and fear are dominating the stock market, Alan Greenspan said banks and other financial managers must be prepared to weather all but the most horrendous storms. "Hundred-year floods come only once every hundred years," the Federal Reserve chairman said Friday. "Financial institutions should expect to look to the central bank only in extremely rare situations." Read his speech. "This is crucial," said Irwin Kellner, chief economist at CBS.MarketWatch.com and the Weller professor of economics at Hofstra University. "He's saying he's not going to save us on the way down." The financial markets showed very little reaction to Greenspan's speech. See Bond Report and Market Snapshot. Today on CBS MarketWatch Selling rocks Dow, Nasdaq Economic data shows hot economy Gold's allure grows Greenspan: Investment is risk, after all Sun shares up after revenue soars More top stories... CBS MarketWatch Columns Updated: 04/14/2000 4:05:48 PM ET Greenspan spoke at a conference in honor economic historian Anna Schwartz, who was Milton Friedman's research partner. Greenspan made no comments about the current economy or the stock market, but his speech did focus on the topic of risk-avoidance, a subject with immediate relevance. Investing is all about risk, Greenspan said. Changes in investment behavior are often brought on by changes in the perception of risk. The financial crisis of late 1998 is one example of a period when investors fled to the most liquid positions they could find. "When confronted with uncertainty, whether in financial markets or in any other aspect of life, disengagement is the normal protective reaction," he said. Bouts of uncertainty occur but cannot be predicted. Banks and other managers must test their reserves against many possible scenarios, including possibly rare occurrences of loss of confidence. "These reserves will appear almost all the time to be a suboptimal use of capital, but so do fire insurance premiums -- until there is a fire," Greenspan said. "Few would argue that zero leverage is consistent with maximum growth," Greenspan said. "Yet the dangers of too much leverage are all to evident." The role of central banks is to help private parties manage all but those once or twice in a century events "that threaten the stability of our domestic and international financial systems."