Location: New York
Author: Lenny Broytman
Date: Wednesday, October 10, 2007
The man who many believe was the ultimate puppet master for the US economy during his reign as Federal Reserve chairman has weighed in on the year-long subprime disaster that was gripped international finance.
According to newsfactor.com, Alan Greenspan was quoted as saying that “we are not through with this yet.” Referring to what he calls an “Act II”, Greenspan noted the nation should prepare for a scenario in the very near future in which falling house prices will coincide with a slower rate of consumer spending. He also reiterated his stance on the possibilities of a recession, which he maintains is “less than 50/50.”
In his defense of the US subprime scene, Greenspan noted that repackaging and selling of high-risk home loans (not the loans themselves) is the actual culprit in the devastating mess.
"For example, the yields on what has been the poster child of this crisis, asset backed commercial paper, have jumped up sharply," Greenspan said. "It has since come down, but not all the way."
Greenspan, who has been on an intense promotion swing for his new book has also publicly criticized the role of rating agencies in this entire situation.
"The problem was that people took that as a triple-A because ratings agencies said so," he said. "What we saw was a 180 degree swing from euphoria to fear and what we've learned over the generations is that fear is a very formidable challenge," Greenspan added
This comes amidst growing industry speculation that many of the nation’s top rating agencies have been slow on lowering their ratings on securities based on mortgage loans to those with poor credit.
Greenspan also stepped in to defend central banks and market regulators, on the issue of whether or not they have the resources to deal with criminal activity.
"We are not skilled enough in these areas and we shouldn't be expected to," he said. "It should be with the states' attorney general and, frankly, it should be beefed up a considerable amount from where it is at this stage," he said.
"Subprime mortgages were and are risky, but they are worth it," Greenspan said, adding that is better to have a larger property owning class with a vested interest in the system.
"I'm terribly concerned that we would cut back on the availability of subprime that has enabled a very significant increase in mortgages among minorities in the United States," he added.
Greenspan also pointed out that no matter what occurs, there will always be a place in the US economy for people with questionable credit histories.
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