NEW YORK (Bloomberg) — Former Federal Reserve chairman Alan Greenspan said financial markets and the economy will recover as investors regain confidence.

"Trust will eventually reemerge as investors dip hesitantly back into the marketplace," Greenspan said yesterday in a speech at Georgetown University's law school in Washington. "From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later."

Greenspan urged lawmakers last week to back "extensive" measures to tackle the worst financial crisis since the 1930s and head off a recession. The US Senate passed a $700 billion financial-market rescue package on Wednesday, loaded with inducements for the House of Representatives to approve the measure following its rejection of an earlier version on September 29.

"We are living through the type of wrenching financial crisis that comes along only once in a century," Greenspan said yesterday. "Financial markets freeze up as an excess of fear displaces a protracted period of what some might call irrational exuberance. Eventually the market freeze will thaw as frightened investors take tentative steps towards reengagement with risk.

"Broken market ties among banks pension and hedge funds and all types of non-financial businesses, will become re-established, and our complex economy, that has the capacity to produce a fifth of the world's goods and services, will re-emerge," he said.

In a statement e-mailed to lawmakers on September 25, signed by Greenspan, former Treasury Secretary George Shultz and Stanford University economist Robert Hall, the three economists wrote that "the only way that financial institutions can continue to function is for the government to provide financial support".