Federal Reserve Board Chairman Alan Greenspan said again on Wednesday that while the U.S. economy has faced very significant challenges in recent months, a foundation has been laid for resumed long-term growth. Mr. Greenspan answered questions posed by members of the House Financial Services Committee.
Mr. Greenspan repeated on the House side of the Congress much of what he had said Tuesday to a Senate committee. But on the ticklish issue of how best to improve corporate governance and prevent business fraud, Mr. Greenspan worries that in a time of public outrage, Congress may impose too much regulation and thus hinder business efficiency.
In an exchange with Congressman John LaFalce, Mr. Greenspan endorsed a proposal that will make chief executives of the 1,000 largest companies personally responsible for their corporate financial statements. But he doubts that tough provision should be extended to all publicly trading companies.
Congressman LaFalce: "(That's why) I think it is necessary to have not just the top 1,000, but all 17,000 publicly traded corporations, have this certification."
Greenspan: "If they did it voluntarily that would be fine. But I'd hate to have to administer something of that dimension. I'm fearful that the resources that inevitably would go in that direction would impede the much smaller group (of fraudulent companies) that you really need to oversee."
Congress is in the process of passing legislation that would significantly toughen the penalties on corporations that violate sound business practices. The current debate focuses on the balance between government regulation and self-policing by businesses.
Mr. Greenspan made clear that the sharp drop in equity prices over the past two months weighs heavily on the economy, depressing business activity and giving pause to consumer spending.