Greenspan trips the stock market with home-price warning

If only he could keep his thoughts to himself.

Former Federal Reserve Chairman Alan Greenspan helped send the stock market reeling in the last half-hour of trading today, after he warned in a CNBC interview that the U.S. was living through a "once-in-a-century" crisis tied to the housing market’s plunge.

He said falling home prices were "nowhere near the bottom," and he supported the idea of nationalizing mortgage giants Fannie Mae and Freddie Mac, saying they were a "major accident waiting to happen."

Note, though, that this is the same Fed chairman who on June 13 said that "the worst is over in the financial crisis or will be very soon." Hopefully no one took that as a sign to buy bank stocks in mid-June.

Greenspan has, at least, been consistent on the home-price issue. On May 8 he said the housing crisis would go on "at least until the end of the year, if not [into] next year, before it gets rectified."

When his latest comment about housing prices crossed the tape at 12:19 p.m. PDT today, the Dow Jones industrial average was off about 106 points. At the closing bell, 41 minutes later, the Dow was down 205.67 points, or 1.8%, to 11,378.02.

Fannie Mae slid 71 cents, or 5.8%, to $11.50; Freddie Mac lost 56 cents, or 6.4%, to $8.17. Both had been in positive territory earlier in the session.

The Dow, however, was in the red the entire session, after the latest economic data deepened concerns that the U.S. might not be able to avoid recession. (Greenspan opined that the odds of an official recession were "50-50." Way to hedge your bet, Mr. Chairman!)

Still, the Dow managed to eke out a 0.2% rise in July, only its second monthly increase since November. The broader Standard & Poor's 500 index, which fell 1.3% today, was off 1% for the month. The Nasdaq composite, down 0.2% today, was up 1.4% for all of July.

Photo: Alan Greenspan. Win McNamee/Getty Images

Comments

[James Howard]

Anyone who can't make their mortgage payments at a 6.35 interest rate should lose their home. People who say they can't make mortgage payments that are higher than their teaser rate. Should never have bought in the first place!

[larry]

I think Greenspan should shut up for good and forfeit his pension for damaging the economy. He was the official who jerked the interest rates up and down too much too fast thus he inflated and busted the housing market bubble.

[tedson]

It seems Alan Greenspan doesn't really know what he's talking about until after the fact. He should keep his mouth shut and let somebody clean up his mess.

[Eva S]

Alan Greenspan most likely has Alzheimer's. He's been crying for attention for this past year and his somments should not be publicised.

[Bill]

Greenspan is one of the architects of this effing mess, its long past the time he shut his yap and flew off to some place where his phone does not work.

[Gary Noel]

Lots of us tree hugging eco-nazis have been saying for decades that development has been done in an unsustainable manner. The unholy trio of developers, politicians and Wall St. have made the decisions for us. Now that they are discovering that ever expanding tracts built to serve the automobile aren't going to work. Do they accept this fact?? Of course not!!! They simply blame it on others and demand that taxpayers rescue them from this huge mistake. At this point homebuilders are screwed!!! There will be no 'turnaround' in housing unless and until, as a society, we realize that development has to be done for people, not for cars and profit.

[Evan Williams]

Greenspan is an idiot, read some of his 2004 statements for a good laugh:
http://realtytimes.com/rtpages/20041021_bubbleburst.htm

Next up, does anyone really believe that Greenspan is responsible for the stock market downturn? When the DOW is in the red for the entire trading session, it almost always drops sharply towards the end of the day when traders have given up all hope of a rally. The only people that give Greenspan any credit are the media who report this junk as fact.

Greenspan is a washed-up has-been and should be held accountable for his terrible performance as Fed Chief. If all we're going to do is blame him or the govt for this but not actually punish anybody, we as citizens are saying it's okay and to do it again in a few years. What we need today is real transparency and accountability in our government.

[Jim Monachino]

Greenspan Unchained: Since the early 1970's Greenspan has been a political player. He has played the game to his advantage remaining quiet when he should and expressing party line compliance when required.

All 0f his current Observations: are not out of line with what many insiders are seeing and not expressing - - They still have a stake in the game, he doesn't.

Deflation: Unfortunately, Greenspan is now considered the boy who cried wolf one to many times. Folk, what Greenspan is talking about is worldwide deflation which is something most of the world population has never experienced. (100 years is the expression for out of conscious memory.)

Beware: The solutions for deflation are not the same solutions as for an inflationary environment. As a matter of fact, inflationary remedies will bury your financial portfolio if you pursue them.

Jim Monachino

[Alan]

Remember, Alan Greenspan is in no way responsible for this economic mess.

Repeat this until you believe it.

AG

[martscan]

It seems to me that Greenspan's admitting in his book that he intentionally spoke "Greenspanspeak", convoluted technical jargon that obfuscated already arcane economic terms, was a necessity. Not for the dilatory and other reasons he mentions, but because he was simply faking it. The big knock on AG is, of course, that he kept rates too low too long. Considering that that policy eventually came home to roost, and as fowl is wont to do, crapped all over everyone...I believe old AG conned the country, the world and himself into believing he actually knew what the hell he was doing. Now that the Friedman and 'Chicago school' economists are scrambling to rediscover what policies and programs worked to get us out of the Great Depression housing woes, ala the HOLC and other devises, Keynes' and Galbraith's works will be studied assiduously. Galbraith nailed it when he described interest rate forecasters: "There are two kinds, those that don't know and those that don't know they don't know."