April 28th, 2008
07:22 AM GMT
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LONDON, England – Some blame Alan Greenspan, the former Fed chairman for helping sow the seeds of the housing bubble and the subsequent fallout. Greenspan of course has answered his critics and defends his policies. Agree or disagree with whether Fed policies played a role in the current financial crisis, everyone still wants to know Greenspan's thoughts.

I had a rare opportunity to interview him for 50 minutes last week. It's something few journalists get to do and it wasn't really planned.

I had gone to the European Pensions and Investments Summit 2008 in Montreaux, Switzerland. About 450 people attend. The attendees have collectively about $3 trillion of assets under management. CNN marketing asked me to attend to underscore our commitment to business programming. I originally went to moderate a panel with five chief European economists, but while there I was asked to interview Greenspan.

The interview was conducted via satellite, with the 82 year old Greenspan in Washington. For me there was one question that loomed above all others, the question everyone wants to know: How much longer will the fallout from the subprime crisis last?

Some key players on Wall Street think the worst is now over, and judging by the performance of financial stocks since March 17 (the day the Fed announced the rescue of Bear Stearns) investors are acting like the worst is behind.

Greenspan however sees it differently. He told me he wouldn't go so far as to say the worst is over, even in the financial sector. In terms of the economy itself, he sees a turnaround in housing as a key to moving beyond the crisis. And here's the bleak news, he doesn't see house prices bottoming out until the second half of next year, specifically in the third quarter.

The panel of European economists I interviewed, with the exception of one, is fairly bearish on the outlook for the U.S. economy, with one of those economists seeing no recovery until 2010.

And course, the longer the U.S. economy stays weak, the greater the knock on effect on the global economy.

There are a lot of headwinds for the U.S. economy... banks are keeping lending tight, consumers in the U.S. are getting squeezed by rising petrol prices, rising food prices, and falling house prices.

I think it will take much longer than many expect for the economy to recover. That's why I wasn't surprised when Greenspan told me he's not convinced the worst isn't over. It may be easy to criticize him, but on this score its tough to disagree with him.



soundoff (9 Responses)
  1. Ian G. Landless

    Great to listen to you always, wherever i am in the world.. and now a pleasure to find your page.

    Greenspan knows more than most in the world, .. this time round !
    But it could be China´s move that changes the gear ratio?

    Keep up your great work!
    With respect,
    iAn.

    April 28, 2008 at 10:38 am |
  2. Les

    Gloomy predics
    UAW thinks world is flat. Have the chance to run with thw ball, they don't have the courage (balls) to do it. They make more money then anyone in the world...The USA is in trouble... do they care? NO!

    They need a serious leadership change.. They think the Big three wont leave if they strike. BuBa...you had your chance, If it gets rid of you (UAW) more power to em. I'll work for $8.00 an hou.r.

    April 29, 2008 at 12:00 am |
  3. Guijuan Go

    During his tenure, former Fed Chairman Alan Greenspan kept the Fed fund rate very low for a very long time to prevent the US economy from teetering over post 9/11. Funny how the very thing he tried to avoid is haunting him right now.

    April 29, 2008 at 9:11 am |
  4. Nicholas Young

    Todd,
    Greenspan managed a candy store which allowed consumers access
    to the sweets (cheap money) and the takers never considered the consequences (tooth ache).

    Today, different manager same management at the candy store?

    More painful visits to the dentist will be required.

    Keep up the excellent reporting.
    Nicholas

    April 29, 2008 at 2:21 pm |
  5. Mark

    Great job at the Marcus Evans EPI event last week, you certainly know your stuff, and got the best out of the panelists and AG!

    It's a nervous time for investors and home owners, and when senior economists are on balance bearish, it's tough to ignore. We must not forget however, that the real losers will mostly be from developing countries, and this down turn could set them back decades. We have a responsibility to protect not only our own economies, but also the budding economies, whose populations are so vulnerable.

    April 29, 2008 at 4:07 pm |
  6. Mark May

    Todd,
    It is incomprehensible to me that so many people fail to understand the effect of the interest rates cuts by the United States. Every time that the interest rate is cut the dollar weakens, which further increases not only the price of oil, but also increase other critical commodities such as corn, wheat and other grains. The dichotomy of whether to feed the hungry or continuing to fuel SUV’s, further strains the world’s limited resources.

    While other countries have held firm on interest rate or have actually increased interest rates, to stave off inflation, the US continues to reduce interest rates, at the expense of others. I am not an economist; however, we need to examine other economic alternatives, such as buying back US Dollars to strengthen our currency, instead of the one-dimensional approach that has been followed to date. The US has continually failed to take the necessary steps to responsibly bring its economy in line with other globally economies. Failure to enact responsible economic policies that are synchronized with our global neighbors will radically change world markets.

    One can only presume that the economic malaise that the US has been experiencing, will need to be solved by the next administration; along with the other quandaries, such as Iraq, and unfunded mandates such as Afghanistan and Education that the Bush Administration has forced on United States.

    April 30, 2008 at 7:17 pm |
  7. Shorty

    Surpsringily well-written and informative for a free online article.

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