Alan Greenspan
Alan Greenspan was interviewed on 60 Minutes last nite:
Greenspan
Says biggest long-run problem is 're-emergence of inflation'
..
In an interview with correspondent Lesley Stahl of the CBS News program "60 minutes," Greenspan said that over the long run, the biggest problem facing the U.S. economy is "the re-emergence of inflation," and rising interest rates. The interview was scheduled for broadcast on "60 Minutes" Sunday night.
..
Greenspan said it is not clear yet whether the current turmoil in financial markets will have a deep, lasting effect on the economy.
..
He said that home prices have further to fall, but that there is an "underlying strength" in the U.S. economy.
..
"When you look around the world, even with this extraordinary credit problem, the economies seem to be holding up," Greenspan said.
..
"For the moment, it does not look sufficiently severe that it will spiral into anything deeper," he said. ......
...
Greenspan
Says biggest long-run problem is 're-emergence of inflation'
..
In an interview with correspondent Lesley Stahl of the CBS News program "60 minutes," Greenspan said that over the long run, the biggest problem facing the U.S. economy is "the re-emergence of inflation," and rising interest rates. The interview was scheduled for broadcast on "60 Minutes" Sunday night.
..
Greenspan said it is not clear yet whether the current turmoil in financial markets will have a deep, lasting effect on the economy.
..
He said that home prices have further to fall, but that there is an "underlying strength" in the U.S. economy.
..
"When you look around the world, even with this extraordinary credit problem, the economies seem to be holding up," Greenspan said.
..
"For the moment, it does not look sufficiently severe that it will spiral into anything deeper," he said. ......
...
Comments
Greenspan alert on US house prices
US house prices are likely to fall significantly from their present levels, Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market.
In an interview ahead of the release on Monday of his widely-anticipated memoirs, the former chairman of the Federal Reserve said the decline in house prices "is going to be larger than most people expect"......
...
..
The Oracle Reveals All
(NW).......Which gets us to where we are today: the housing bubble has burst, the subprime-mortgage market has melted down and we're in a credit crunch. Critics have charged that the Fed contributed to the trouble by keeping interest rates low for so long.
(AG) This particular problem was an accident waiting to happen. The euphoria that existed in the expansion of the housing-market bubble induced investors around the world who'd had a huge buildup in liquidity—largely because of the lower real long-term interest rates that occurred as a consequence of the end of the cold war—to invest in something with a higher rate of return. And, lo and behold, the subprime-mortgage market provided it.
(NW) The mortgage brokers were just meeting demand from investors?
(AG) Precisely. And so you had Wall Street's securitizers basically then talking to the mortgage brokers saying, "We'll buy what you've got." ... The big demand was not so much on the part of the borrowers as it was on the part of the suppliers who were giving loans which really most people couldn't afford. We created something which was unsustainable. And it eventually broke. If it weren't for securitization, the subprime-loan market would have been very significantly less than it is in size.
(NW) People want the Fed to cut interest rates to alleviate tight credit conditions. Do you think the financial marketplace has come to view interest-rate cuts as a crutch? And is that an appropriate role for the central bank?
(AG) To the extent that [the Fed] interferes with the economy, we do help some of the people who are involved in rather questionable financial activities. The problem basically is that if you do effective monetary policy and stabilize the economy, you will raise all asset prices—those that are assets owned by prudent investors, but also the prices of assets of those who have taken very silly risks and should be punished as a consequence. There is no simple solution. If we do something which works for the society as a whole, we will inadvertently and undesirably bail out, if you want to put it in those terms, the people who have taken silly risks.
(NW) And how does the housing market look now?
(AG) On top of all this, we've got a housing outlook which is very unfavorable. There are estimates of about 200,000 new mainly completed units that are atrophying and have to be sold quickly. But the sales of homes are falling even though housing starts are falling sharply ... That's putting downward pressure on prices. There's an Act II to this: as prices go down, the net worth of individuals goes down. And their propensity to spend goes down........
.....
For a retired guy, Mr. Greenspan sure is in the news alot.
......"People always say it's the subprime market that created this crisis,'' Greenspan told investors at an event hosted by Bloomberg LP in London. ``It's the subprime asset-backed market'' which did, he said. "As a consequence of that, there's going to be some rethinking about collateralized debt obligations"......
....."The pricing which in too many cases has been, by some model derivation, four times removed from actual market prices, just doesn't work,'' Greenspan said......
Greenspan Sees `Rethinking' on CDOs After Losses
Former Federal Reserve Chairman Alan Greenspan said there will be "some rethinking'' of collateralized debt obligations after demand for them helped fuel a bubble in the U.S. subprime mortgage market.
"People always say it's the subprime market that created this crisis,'' Greenspan told investors at an event hosted by Bloomberg LP in London. "It's the subprime asset-backed market'' which did, he said. "As a consequence of that, there's going to be some rethinking about collateralized debt obligations.''
The comments suggest Greenspan is moderating his enthusiasm for derivatives, which he has often praised for diversifying risk. Central banks have raised concern about the way markets value CDOs, securities based on underlying debt and other assets. Losses on them helped curb third-quarter profit at Citigroup Inc., the biggest U.S. bank.
"The Wall Street firms were under real pressure to supply asset-backed securities, and the Wall Street firms were pressing the lenders to give them more raw material,'' Greenspan said today. "Credit standards just went straight down, and applications for subprime mortgages soared. The consequences of that are evident.'' ......
......"The pricing which in too many cases has been, by some model derivation, four times removed from actual market prices, just doesn't work,'' Greenspan said. Still, CDOs "serve a useful purpose.''
While financial innovation has been "a net plus to the community'' for the new products that have been created, there must ``be a limit as to how many you can create, and we're way past that limit as far as I am concerned,'' he said.
"A lot of structured products are going to have short life expectancies,'' Greenspan said.
One in five managers of CDOs is likely to be forced to cut costs or go out of business as investors avoid the securities following losses on subprime debt, Fitch Ratings said Sept. 24. As many as 40 percent of managers focused only on asset- or mortgage-backed bonds may be "impaired,'' Fitch said. .......
......Greenspan said that investors are assuming the worst of the credit slump has passed. The Dow Jones Industrial Average yesterday climbed above 14,000 for the second time in its 111- year history to close at a record, recovering from a sell-off in July and August.
"We're seeing signs in the last week or so that a number of areas of significant strain are easing,'' Greenspan said. Still, he cautioned that "we're not out of the woods yet.''
..