CNBC Press Releases

BARTIROMO: DO YOU EXPECT THAT TO HAPPEN THIS YEAR AND WE WILL SEE A FLOOR IN THE HOME PRICES OR DOES IT GO INTO 09?

GREENSPAN: THAT'S ONE OF THE THINGS I DON'T THINK ANYBODY CAN MAKE A REASONABLY GOOD JUDGMENT ON. WHAT WE KNOW IS THE CONTINUED EROSION IN A BUILD UP OF MORTGAGE-BACKED SUBPRIMES AND MORTGAGES HAS COME TO AN END. THE ISSUANCE OF NON-CONFORMING MORTGAGES IN MARCH WAS ZERO AND IT WAS IN ALT A AND SUBPRIME AND MODEST AMOUNTS IN THE JUMBOS. WE STILL HAVE GOT THE APPROPRIATE PRICING TO CONSTRUCT FOR THE LARGE HOLDINGS OF MORTGAGE-BACKED SECURITIES AND IT STRIKES ME THAT WHAT WE DON'TKNOW IS THE EQUITY IN HOMES WILLBE AT ANY INDIVIDUAL PRICE LEVELBECAUSE REMEMBER, THE ULTIMATE COLLATERAL THAT BACKS UP MORTGAGE-BACKED SECURITIES IS THE EQUITY IN THE HOMES WHICH BASICALLY SUBPRIME FINANCED HOMES HAVE BEEN FINANCED BY SUBPRIMES AND IT'S THAT EQUITY WHICH IS THE KEY VALUE BASE FOR THE MORTGAGE-BACKED SECURITIES AND SIMILARLY FOR A. AS I SEE IT, AS PRICES BEGIN TO MOVE DOWN, YOU GET AN INCREASING SQUEEZE OVER THAT COLLATERAL ANDTHE RESULT IS EVER INCREASING MARK DOWNS.THE ONE SAVING GRACE IF YOU WANTTO PUT IT IN THOSE TERMS, AT THE EVALUATION PROCESS WHICH AS YOU KNOW IS LARGELY THE INDIRECTLY THROUGH THE ABX DERIVATIVES MARKET WHICH IS PRICED OF SUBPRIMES, PARTICULARLY, THEY ARE EXTREMELY DEPRESSED.ONE CAN ARGUE THAT NO MATTER WHERE THE PRICES GO IN ANY REALISTIC SENSE FOR HOMES, WE ARE ALREADY THERE.IF THAT IS INDEED THE CASE, WE WILL EMERGE INTO A MUCH MORE BENEVOLENT ENVIRONMENT SHORTLY, BUT I DON'T THINK WE KNOW THAT AND I DON'T THINK WE CAN KNOW THAT.RIGHT AT MOMENT, WE HAVE BEGUN TO GET THE LARGE OVER HANG OF SAY SINGLE FAMILY VACANT RESIDENTS.

LIESMAN: ONE OF THE QUESTIONS OUT THERE IS WHERE WAS THE FED AS A REGULATOR?THE PERSON WHO CAME UP AND COMPLIMENTED YOU ON THE 401K, HOW DO YOU EXPLAIN, WHERE WAS THE FEDERAL RESERVE AS OVERSEEING THE MARKETS AND STOPPING THIS FROM HAPPENING ANDWILL IT STOP IT IN THE FUTURE THAT SO BRINGS THE FINANCIAL SYSTEM TO THE BRINK?

GREENSPAN: I DON'T THINK WE COULD HAVE. IT'S NOT APPARENT TO ME AND TO A LOT OF PEOPLE WHO LOOK AT THIS ISSUE IN DETAIL, BUT THE PROBLEM WAS ESSENTIALLY IN WHAT WAS VERYEGREGIOUS LENDING PRACTICES EARLY ON IN THE SUBPRIME MARKET. THE REAL PROBLEMS BEGAN TO EMERGE ONLY WHEN WE BEGAN TO ISSUE SUBPRIMES AS MORTGAGE BACKS. BECAUSE THEY WERE MORTGAGE BACKED SUBPRIMES, THEY HAD A HIGH YIELD, BUT THIS WAS DURING THE TIME WHEN PRICES OF HOMES WERE STILL RISING AND DELIQUINCIES AND FORECLOSURES WERE LOW. THE HEDGE FUNDS AND INVESTMENT BANKS WERE LOOKING AT A RATE OF RETURN.THEY SAW THIS AS A MARVELOUS OPPORTUNITY AND THERE WERE HUGE REQUESTS FROM THE HEDGE FUNDS TOTHE SECURITIZERS AND THEY IN TURN PUT PRESSURE ON THE LENDERSAND THE LENDERS BASICALLY BEGAN TO SHUFFLE PAPER AND UNDERWRITING COLLAPSED. I THINK THERE WAS NOTHING ANY OF THOSE REGULATEORS WHO ESSENTIALLY ARE LOOKING AT THE MOST SOPHISTICATED PEOPLE IN THEWORLD MAKING TERRIBLE MISTAKES. ALL EXAMINERS COULD NOT IN MY JUDGMENT.

LIESMAN: WHAT ABOUT THE WAY FORWARD? THE FED MADE LIQUIDITY AVAILABLE. DO YOU HAVE A COMMENT ON WHETHER OR NOT THAT'S APPROPRIATE AND WHETHER OR NOT THE FED IN THE FUTURE IS GOING TO BE A MARKET STABILITY REGULATOR?

GREENSPAN: I THINK YOU HAVE TO ASK YOURSELF IF YOU HAVE A CURRENCY WHICH WE DO HERE, YOU ARE GOING TO GET REGULATION BECAUSE REMEMBER THE SYSTEM DOES NOT HAVE THE CONSTRAINTS THAT OCCURRED WHEN WE WERE ON THE GOLD STANDARD.THE LOGIC FOR REGULATION MUST LIE IN THE AREAS THAT MARKETS DO NOT FUNCTION FULLY IN EQUILIBRIUM WHEN YOU ARE DEALING WITH THE CURRENCY.YOU DON'T WANT TO HAVE THE CENTRAL BANK DIRECTLY INVOLVED IN THAT EXCEPT UNDER EMERGENCY CONDITIONS. I THINK THAT IF YOU ARE GOING TO DEAL WITH A SITUATION LIKE THIS, THE ISSUE FOR APPROPRIATIVE FUNDS OF THE TREASURY TO SET UP SOMETHING LIKE THE RESOLUTION TRUST CORPORATION THAT HAS YOU REMEMBER IT WAS VERY SUCCESSFUL IN RESOLVING THE S AND L CRISIS. THE ISSUE HERE IS THAT PEOPLE LIKE TO THINK THAT THE FEDERAL RESERVICE MONEY IS FREE, BUT IT'S EXACTLY THE SAME MONEY THAT THE PRESSURE TREASURY HAS AND THERE IS NO DIFFERENCE BETWEEN THESE TWO.

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