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Ask Money

Greenspan gives 1-in-3 odds on recession

Scott Jagow Mar 8, 2007
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Ask Money

Greenspan gives 1-in-3 odds on recession

Scott Jagow Mar 8, 2007
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TEXT OF INTERVIEW

SCOTT JAGOW: Former Federal Reserve Chairman Alan Greenspan is obviously not going quietly into that good night. His comments about the economy last week helped spark this recent stock market sell-off. Greenspan has a more pessimistic outlook than the new Fed Chairman Ben Bernanke. Our economics correspondent Chris Farrell is with us. Good morning, Chris.

CHRIS FARRELL: Good morning.

JAGOW: What is Greenspan doing?

FARRELL: Well that’s what everybody wants to know. Does he still think that he’s the head of the Federal Reserve? Is Ben Bernanke being dissed by his legendary predecessor? I don’t think so.

JAGOW: No?

FARRELL: I don’t think so. I think — now I have no proof, I have no knowledge, but I think — Ben Bernanke is going ‘thank you Alan.’

JAGOW: Why?

FARRELL: Alright, now here’s the reason why: We have this implosion that’s going on in the sub-prime mortgage market. There’s lots of concern that the implosion in that market is spreading into the more creditworthy parts of the housing market and if that continues, that will affect the economy. Then all of a sudden this one-third probability of recession could be true. Now, what does former Federal Reserve chairman Alan Greenspan do? He talks about risk. Because he didn’t just talk about recession, he talked a lot about risk, that he is disturbed, he’s never seen the degree of complacency about risk and the global economy woke up. I think central bankers are cheering Greenspan. They’re saying, ‘he did our job, this is wonderful.’

JAGOW: So Greenspan is doing the world a favor, in other words?

FARRELL: He is doing the world a favor. And I think, you know, in a way maybe he is the central banker to the world.

JAGOW: Well on the subject of the sub-prime mortgage market, how big of a concern is this to you?

FARRELL: This is a real problem market. It is spilling over into the creditworthy market. I personally don’t think that it will take down the rest of the economy, I don’t see it leading to a recession. By the way, if you really want to worry about something? What I’d worry about is, we had that sharp drop in China. We know that there’s a lot of bad investments in China. We know there has been an enormous boom and when you have booms like that you mask a lot of problems. And I am more concerned about the repercussions of a China market meltdown than I am about a sub-prime mortgage market meltdown.

JAGOW: Well we’ll keep talking about this. Thanks for your theories.

FARRELL: And you know this is part of the dialogue that makes markets.

JAGOW: That’s our economics correspondent Chris Farrell.

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