'Worst crisis since WWII'

"The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War," Greenspan said in a Financial Times commentary.

"It will end eventually when home prices stabilise, and with them the value of equity in homes supporting troubled mortgage securities," he said, referring to the meltdown in the US subprime home loan market and subsequent massive losses for the banks holding the debt instruments.

"The crisis will leave many casualties," he said, his remarks coming after Bear Stearns, the fifth largest US investment house collapsed on Friday and was taken over by JPMorgan Chase for a fraction of its value of only a week ago.

At the weekend, the Fed also announced a series of emergency measures intended to ease the credit crunch and calm nerves as investors fled to apparent safety in the euro and commodities such as oil and gold, which hit record highs again on Monday as stock markets in Asia and Europe tumbled.

Hard hit

"Particularly hard hit will be much of today's financial risk-valuation system, significant parts of which failed under stress," said Greenspan, who some have criticised for contributing at least in part to the current crisis by being too lax on monetary policy whilst head of the Fed.

Greenspan recognised that changes would have to be made as a result of the crisis, but he argued that they should not compromise the abiding principles of free competition.

"In the current crisis, as in past crises, we can learn much, and policy in the future will be informed by these lessons. But we cannot hope to anticipate the specifics of future crises with any degree of confidence," he said.

"Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition."

- Sapa-AFP