Greenspan Dives into Bathtime Economics; MARKET MOVER: Alan Greenspan Has Warned Britain Could Be Heading for Difficulties in the Housing Market

Daily Mail (London), September 18, 2007 | Go to article overview

Greenspan Dives into Bathtime Economics; MARKET MOVER: Alan Greenspan Has Warned Britain Could Be Heading for Difficulties in the Housing Market


Byline: Alex Brummer

NO voice in global finance has carried such weight as that of AlanGreenspan over the last two decades. Every phrase he has uttered has beencarefully studied for nuance and proved capable of moving markets and makingand breaking fortunes.

When he first suggested earlier this year that there might be a recession in2008 the Dow Jones index tumbled 3.3pc in one day, its worst performance since9/11.

His more recent comments suggesting a one-third chance of recession, just asthe sub-prime mortgage crisis came over the horizon, also caused a shudder andsharp comment from no less a figure than the Governor of the Bank of EnglandMervyn King, who expressed relief that his predecessor Eddie George had kepthis powder dry since retirement.

In an interview in his wood panelled ovalshaped office in downtown Washington,Greenspan is quietly amused by all this controversy.

'All my meetings where I expressed a view on the economy have been off therecord,' he insists.

'But there is always some fellow there who can't resist going to the phone andrepeating them to the media much to my distress.' Now that he is talking forthe record, to mark the publication of his weighty book The Age of Turbulence,he is still careful. But not enough to stop him predicting that Britain toocould be heading for 'difficulties' in the housing market.

'There are some signs that the (U.S.) economy is worsening,' he observes. 'Butno signs of a great difference.' Greenspan was born into a traditional Jewishfamily in Washington Heights, New York.

He was brought up by his mother after his parents separated. His father, a WallStreet broker, was an important influence, presenting the young Alan with hisbook Recovery

Ahead, the voice of optimism in the midst of the Great Depression.

The future Federal Reserve chairman started in life as a jazz musician, playingclarinet and later saxophone with touring dance bands, after receiving hisinitial education at New York's famed Juilliard academy. His aptitude in mathsand statistics eventually led him to enrol in degree course in economics andfinance at New York University, graduating in 1948 before taking a Masters ineconomics.

He later enrolled in a PhD programme at the more prestigious ColumbiaUniversity, where his tutor and mentor was Arthur Burns, who later served asFed chairman under presidents Nixon, Ford and Carter.

The reason that Greenspan is listened to is not just because of the success insteering the American economy from 1987 to 2006, serving alongside fourAmerican presidents, but because of a life delving into economic data.

Whereas most people might regard the entrails of the iron and steel productionfigures as tedium itself, Greenspan's whole life has been a detective storybased around studying the data.

It was his ability with statistics and modern econometrics that made himindispensable as an adviser to America's great industries before he worked inthe White House for presidents Nixon and Ford.

He believes that the present sub-prime credit crisis was 'an accident waitingto happen'. The only surprise for him is that it happened now, not in 2005 whenhe first predicted it in a speech at the Jackson Hole symposium hosted by theKansas City Federal Reserve Bank. Greenspan reminds me that he had warned that'risk was rampant' and 'that history does not do well with such episodes'.

The difference this time is 'something technical, the securitisation ofsub-prime'. The reasons for doing it were sensible enough.

The originators of the loans tended to be concentrated in local geographicalareas so by parcelling them up and distributing them, the risk looked to beshared.

He observes that when the banks realised that this subprime debt offered ahigher yield they couldn't get enough of it.

They demanded more and more and the originators took on ever greater risksoffering loans to people who had no place having them. …

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