Rational Advisor

Paulson warns market turbulence isn’t over yet - Associated Press

September 7, 2007 at 12:51 PM EDT

Treasury Secretary Henry Paulson said Friday that it will take time for financial markets to work through the current credit problems and some companies won’t make it.

Paulson said he has seen some “modest improvement” since the credit crunch hit with full force in mid-August, but he cautioned that there would be more bad news to come.

“There will be news that isn’t always good news. There will be some organizations that won’t make it. There will be some losses,” Mr. Paulson said. “But I feel quite strongly, we have a resilient economy and we are going to work our way through it.”

Mr. Paulson, who was the head of investment giant Goldman Sachs before joining the administration a year ago, said that he had seen a number of periods of market turbulence stemming from increased fears about credit quality, citing 1987, 1994 and 1998 as the most recent examples.

He said the biggest surprise may be how long it has been since the last such turbulence in 1998 as part of the Asian financial crisis and the near-default of Long Term Capital Management, a big U.S. hedge fund.

“If you look at history, it is not unusual … for there to be turmoil in the markets every five, six, seven years,” he said. “The thing that is sort of unusual is how long it has been since the last period of real turmoil which was 1998.”

[Rational - the above line was the key line to re-read. This happens and it happens often!]

Former Federal Reserve Chairman Alan Greenspan said in a Thursday speech that the current market turmoil was in many ways “identical” to periods of market turbulence in 1987 and 1998.

“The behaviour in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly the bank panic of 1907,” Mr. Greenspan was quoted by the Wall Street Journal as telling an academic conference.

Asked about those comments, Mr. Paulson said there were “obviously some similarities” to the market turbulence in 1998 and 1987.

Mr. Paulson, interviewed on the White House lawn by Bloomberg Television, said the loss of 4,000 jobs in August was not entirely surprising after 47 consecutive months of job gains.

But he said a strong underlying economy and a strong global economy should help the United States avoid a recession.

Rational - there you have it, the head of US finances, tellling you , it’s normal, it’s happened before, and they will avoid a recession - the skeptic in me says - What-did-you-expect-him-to-say! Of course he’s going to be gung-ho! But atleast he admitted that there’s more volatility

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