CNBC Press Releases

MARIA: AND OF COURSE, WITH SOVEREIGN FUNDS PRETTY ACTIVE RECENTLY, AND TALKING ABOUT THE IDEA THAT THEY WANT TO GET OUT OF DOLLAR DENOMINATED SECURITIES IS THERE ANY REASON TO BELIEVE THAT SITUATION REVERSES ITSELF?

GREENSPAN: I'M NOT SURE AND I'M NOT SURE IT'S THAT ALL IMPORTANT. WE'VE HAD CONSIDERABLE EXPERIENCE OF VERY LARGE QUANTITIES OF U.S. TREASURY ISSUES OR OTHER DOLLAR FUNDS MOVING AROUND THE WORLD AND THEIR IMPACT HAS NOT BEEN LARGE, I MEAN, FOR EXAMPLE, REMEMBER THE JAPANESE WERE ACCUMULATING VERY SUBSTANTIAL AMOUNTS OF DOLLAR DENOMINATED SECURITIES PRIOR TO MARCH, 2004, IN AN ENDEAVOR TO AFFECT THEIR EXCHANGE RATE. THEY STOPPED COLD IN MARCH, 2004 AND NOTHING HAPPENED. THIS SUGGESTS THAT THESE MARKETS ARE EXTREMELY EFFICIENT AND WHEN WE'RE TALKING WELL IN EXCESS OF 100 TRILLION DOLLARS IN THE WORLD OF INTERCHANGEABLE TYPES OF SECURITIES OF THIS TYPE, TO BE SURE, A SIGNIFICANT AMOUNT OF SLOWDOWN IN PURCHASES OR EVEN SALES BY EXAMPLE, CHINA WHICH HOLDS ABOUT CLOSE TO 1 1/2 TRILLION DOLLARS AT THE MOMENT. THAT'S GOING TO HAVE SOME EFFECT, BUT NOT A HUGE EFFECT AT LEAST ON THE BASIS OF WHAT HISTORY TELLS US.

MARIA: AND FINAL QUESTION, MR. CHAIRMAN, LET ME ASK YOU ABOUT WHERE WE ARE IN TERMS OF HE ECONOMY RIGHT NOW. HOW WOULD YOU CHARACTERIZE THINGS? KNOW YOU GAVE US YOUR PREDICTION AS FAR AS THE ODDS OF RECESSION, BUT DO YOU THINK E'VE SEEN THE WORST IN TERMS OF HOUSING AND IN TERMS OF THE REDIT SITUATION AND YOUR THOUGHTS ON THE TREASURY'S PLAN TODAY WITH THE MAJOR BANKS IN TERMS OF OFFLOADING SOME OF THAT BAD DEBT?

GREENSPAN: WELL, FIRST OF ALL, WE CERTAINLY HAVEN'T SEEN THE WORST OF HOUSING, IN FACT, THE MAJOR CONSTRAINT ON THE UNITED STATES AT THIS MOMENT IS A VERY LARGE OVERHANG OF NEWLY BUILT, BUT VACANT HOMES WHICH HOME BUILDERS FIND VERY EXPENSIVE TO MAINTAIN AND ARE GRADUALLY BEGINNING TO THROW THEM ON THE MARKET. THAT IS PRESSING PRICES DOWN WHICH OBVIOUSLY IS AFFECTING HOME CONSTRUCTION, BUT FAR MORE IMPORTANTLY, IT'S LOWERING THE EQUITY BUFFER IN HOMES, WHICH MEANS THAT THE VERY LARGE HOLDINGS OF ASSET-BACKED SECURITIES, SPECIFICALLY SUBPRIME ASSET BACKED, ARE POTENTIALLY THREATENED WITH RESPECT TO A GREATER DEGREE OF FORECLOSURE THAN IS CURRENTLY DISCOUNTED IN THE MARKETPLACE. SO, REALLY, IT GETS TO THE POINT OF AN ISSUE WHICH WE REALLY CAN'T FORECAST VERY WELL. IT'S HOW MUCH WILL THE PRICE OF HOMES GO DOWN AS A CONSEQUENCE OF HOME BUILDERS FINALLY BRINGING THEIR INVENTORIES FROM TWICE WHAT THEY OTHERWISE OUGHT TO BE DOWN TO NORMAL.

MARIA: ALL RIGHT. WE WILL LEAVE IT THERE MR. CHAIRMAN. NICE TO HAVE YOU ON THE PROGRAM. THANKS VERY MUCH.

GREENSPAN: MY PLEASURE.


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