Greenspan defends US subprime mortgage market
Thursday, 4 October 2007
LONDON, Oct 3 (Agencies): Former Federal Reserve Chairman Alan Greenspan defended the US subprime mortgage market, arguing that the repackaging and sale to investors of risky home loans - not the loans themselves - are to blame for the global credit crisis.
Greenspan warned that the long-term effects on the economy are still being determined, but said there are early signs of an easing in the crisis.
"For example, the yields on what has been the poster child of this crisis, asset-backed commercial paper, have jumped up sharply," he said. "It has since come down, but not all the way."
Similarly, the interbank lending rate, which jumped in recent weeks because of fears about insolvencies, has started to decline, but "not all the way," Greenspan said Monday during a public talk in London to promote his new book.
"We are not through with this yet," he added, suggesting there could still be what he termed an "Act II," in which falling house prices feed into slower consumer spending.
The National Association of Realtors said that its seasonally adjusted index of pending sales for existing homes fell 6.5 per cent from July and 21.5 per cent from a year ago.
The pending home sales index has done a fairly good job of predicting sales levels over the following two months, said Joshua Shapiro, chief US economist with MFR Inc in New York.
Morgan Stanley, meanwhile, said it will cut 600 jobs and slim down its mortgage business as the credit crunch forces investment banks to reduce their exposure to the housing sector.
Meanwhile, a long period of low prices and stable growth is coming to an end and central banks today have to pay more attention to inflation pressures, former Federal Reserve chairman Alan Greenspan said Tuesday.
"We're beginning to see this extraordinary period of disinflation and economic growth is coming to a halt," Greenspan told a business audience in London.
"We now have to be very sensitive to the fact that inflationary pressures could well get out of hand."
He added that the trade-off between inflation and growth had become more negative and that current Fed Chairman Ben Bernanke was likely to have a tougher job than he did.
Greenspan warned that the long-term effects on the economy are still being determined, but said there are early signs of an easing in the crisis.
"For example, the yields on what has been the poster child of this crisis, asset-backed commercial paper, have jumped up sharply," he said. "It has since come down, but not all the way."
Similarly, the interbank lending rate, which jumped in recent weeks because of fears about insolvencies, has started to decline, but "not all the way," Greenspan said Monday during a public talk in London to promote his new book.
"We are not through with this yet," he added, suggesting there could still be what he termed an "Act II," in which falling house prices feed into slower consumer spending.
The National Association of Realtors said that its seasonally adjusted index of pending sales for existing homes fell 6.5 per cent from July and 21.5 per cent from a year ago.
The pending home sales index has done a fairly good job of predicting sales levels over the following two months, said Joshua Shapiro, chief US economist with MFR Inc in New York.
Morgan Stanley, meanwhile, said it will cut 600 jobs and slim down its mortgage business as the credit crunch forces investment banks to reduce their exposure to the housing sector.
Meanwhile, a long period of low prices and stable growth is coming to an end and central banks today have to pay more attention to inflation pressures, former Federal Reserve chairman Alan Greenspan said Tuesday.
"We're beginning to see this extraordinary period of disinflation and economic growth is coming to a halt," Greenspan told a business audience in London.
"We now have to be very sensitive to the fact that inflationary pressures could well get out of hand."
He added that the trade-off between inflation and growth had become more negative and that current Fed Chairman Ben Bernanke was likely to have a tougher job than he did.