GO
Loading...

Housing, Economy Still Far From Recovery: Greenspan

CNBC.com
Thursday, 31 Jul 2008 | 3:46 PM ET

Former Federal Reserve Chairman Alan Greenspan said the US is “nowhere near the bottom” of the housing slump and is “right on the brink” of a recession.

On his last day as chairman of the Board of Governors of the Federal Reserve System, Alan Greenspan smiles as he presides over his final Federal Open Market Committee meeting at the the Fed's headquarters in Washington, Tuesday, Jan. 31, 2006. He is speaking to Deborah J. Danker, at left, special assistant to the board, with Vice Chairman Roger W. Ferguson Jr., at right. Greenspan has held the post for more than 18 years and is widely viewed as the most successful chairman in the Fed's 92-year h
J. Scott Applewhite
On his last day as chairman of the Board of Governors of the Federal Reserve System, Alan Greenspan smiles as he presides over his final Federal Open Market Committee meeting at the the Fed's headquarters in Washington, Tuesday, Jan. 31, 2006. He is speaking to Deborah J. Danker, at left, special assistant to the board, with Vice Chairman Roger W. Ferguson Jr., at right. Greenspan has held the post for more than 18 years and is widely viewed as the most successful chairman in the Fed's 92-year h

In an exclusive interview on CNBC, Greenspan said the US economy is holding up “rather well” considering the “extraordinary pressures from the financial sector.” But he added that a recession appears inevitable.

Credit Crisis One Year Later: Winners and Losers

Wall Street Veteran: Fed's Actions Are a "Band-Aid"

“I think we’re right on the brink,” he said. “I’d be more surprised if we didn’t than if we did, given the financial state.”

Greenspan's remarks, which came shortly after 3 pm, helped accelerate the stock market's slide,with the Dow Jones Industrial Average closing down over 200 points.

Greenspan said the government "had no choice" but to step in and prevent the failure of Bear Stearns and mortgage giants Fannie Mae and Freddie Mac .

Greenspan on the Economy, Pt. 1
Former Federal Reserve Chairman Alan Greenspan shares his thoughts on the economy with CNBC's Maria Bartiromo and Pimco's Paul McCulley.

"You have to do the backstop," he said. "Because once you're at that particular point, your choices are limited."

But he said he was "uncomfortable" with the idea of the Fed getting involved in what he called a "fiscal policy situation" that was really the responsibility of Congress.

He also warned that "Fannie and Freddie are a major accident waiting to happen."

Watch the Accompanying Video for the Full Interview.

"I think the ultimate solution is a nationalization of both Fannie and Freddie and I hope a restructuring in that nationalization," he said. "And then split them up into five or ten separate entities and sell them back into the market."

Greenspan's comments pushed both stocks lower.

He also said that while the priority now is stabilizing the financial system, he is worried about the long-term issue of inflation.

"We will come out of this financial crisis," he said. "But we still have to confront that problem of changing balance between growth and inflation, or what we like to call 'stagflation.'"

Greenspan, who left the Fed in early 2006 and was succeeded by Ben Bernanke, has come under increasing criticism for allowing what many said was easy credit that set up the current financial crisis.

In the interview, Greenspan called the current crisis a "once-in-a-century phenomenon" that went beyond a liquidity crisis and was more what he called a "solvency problem."

"We haven't gotten closure yet," he said. "And it's going to take a while."

  Price   Change %Change
FNMA
---
FMCC
---

Featured

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Don't Miss

U.S. Video

  • NBC's Stephanie Gosk reports the domestic cattle herd is the smallest it has been since 1951. The biggest culprit is California and the Southwest's record water shortages.

  • CNBC's Jim Cramer explains why he is watching the oils, including Baker Hughes, Pioneer Natural Resources and EOG Resources.

  • In this clip from the March 10, 2009 edition of CNBC's Squawk on the Street, the late Mark Haines tells Erin Burnett, "I think we're at a bottom. I really do." As the credit crisis continued to swirl, the Dow had closed the day before at 6,547.05, a staggering 54 percent plunge from its all-time closing high above 14,000 in October of 2007. It was "going out on a limb" at the time, but has proved to be one of the best market calls ever heard on CNBC. March 9 turned out to be the bear market closing low. In the three years since Mark's call, the Dow has almost doubled.