Greenspan: Companies must restore trust

updated 11:09 a.m. ET April 16, 2004

WASHINGTON - In light of the corporate scandals of recent years, companies need to work harder than ever to restore trust in the operation of the nation’s financial markets, Federal Reserve Chairman Alan Greenspan said Friday.

Greenspan predicted that such trust can be restored, but he warned of serious consequences if it is not.

“Recent allegations on Wall Street of breaches of trust or even legality, if true, could begin to undermine the very basis on which the world’s greatest financial markets thrive,” he said in remarks to a financial conference sponsored by the Federal Reserve Bank of Atlanta.

Greenspan said that Americans had lost sight of the need for trust in their business dealings because of a false sense of security that laws and government agencies would protect them in their financial dealings.

“Corporate scandals of recent years have clearly shown that the plethora of laws of the past century have not eliminated the less savory side of human behavior,” Greenspan said in remarks delivered by satellite to the conference at Sea Island, Ga.

Greenspan predicted that the market place will now push businesses, in light of the scandals, to strive harder to show honesty and integrity in their dealings with customers.

And Greenspan warned that if businesses don’t make such an effort, lingering distrust by investors could prove to be a serious harm to the functioning of America’s financial markets.

Greenspan said in order to restore trust, guilty parties “should be expeditiously punished.”

He said that some rules governing the financial markets may need to be updated, but he cautioned against carrying regulation so far that it harms the proper functioning of markets.

“Rewriting rules that have served us well is fraught with the possibility of collateral damage,” he said.

Greenspan, a Republican, has long cautioned against imposing too much government regulation on the operation of financial markets.

His comments Friday came in the midst of a number of major cases involving alleged corporate corruption by former executives of such companies as WorldCom, Enron and Tyco. Greenspan did not mention any of the companies by name in his remarks.

He predicted that all of the scandals would force U.S. companies to re-emphasize the need for trust and integrity as a way to bolster their stock prices among investors.

“After the revelations of corporate malfeasance, the market punished the stock prices of those corporations whose behaviors had cast doubt on the reliability of their reputations,” Greenspan said.

“I hope and anticipate that trust and integrity again will be amply rewarded in the marketplace as they were in earlier generations. There is not better antidote for the business and financial transgressions of recent years,” he said.

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