Former Fed Chairman Greenspan Speaks On US Economy

Former Fed Chairman Greenspan: Current recession worst since 1930’s, global stocks are cheap by historical standards but market volatility is expected to be high.

- Difficult to determine when economy will recover
- Economic downturn cannot “persist indefinitely”
- TARP program partially successful but additional funds would help
- Recovery requires stable home prices, which will not stabilize for “many months” until liquidation of excess inventory can take place; sees another decline of 10% from current levels
- Fiscal stimulus will be helpful
- Self regulation for markets still preferred
- Follow Up: Greenspan was quoted by the FT as noting that it might be necessary to temporarily nationalize some US banks to deal with the financial system, says this would allow the government to transfer toxic assets to a “bad bank” without the problem of how to price them.” Says the government would have to be careful about imposing any loss on sr creditors of nationalized banks, because it could hurt the sr debt of all other banks.

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