VANCOUVER, British Columbia (Reuters) – The United Statesis at the edge of a recession, with the odds at 50 percent orpossibly higher, former Federal Reserve Chairman Alan Greenspansaid on Thursday.
"The odds have definitely moved up from a year ago when Iwas talking of about a third," Greenspan told a financialaudience in Vancouver.
"I think we are now at a point that we are at the edge orover." He added: "The probability of a recession is 50 percent,maybe more but we are not there yet."
Greenspan’s comments were similar to those he made earlierin the month, and he acknowledged that it was very difficult topredict exactly when the economy might enter a recession or wasactually in one.
The former Fed chairman said a lesson learned from previousdownturns in the economy and financial markets – such as afterthe September 11, 2001 attacks – was the need to avoidprotectionist trade policies.
"The economy is exceedingly more resilient than in thepast," Greenspan said, when asked if he thought if a recessionwould be shallow or deep, adding later "for that reason I wouldargue for a relatively shallow recession."
On the issue of the subprime mortgages, which are at theheart of the current economic turmoil, Greenspan said thatalthough the loans were risky, he believed that they were worththe risk as they helped broaden home ownership, especiallyamong minorities.
The "real big surprise" to him was how the subprime crisismigrated across borders to other parts of the world because ofsecuritization — where the mortgages were bundled together forsale through complex financial instruments.
Greenspan gave a cautious thumbs up to the recentinjections by sovereign wealth funds, or government-controlledfunds, of billions of dollars in exchange for stakes in anumber of U.S. banks hard-hit by the subprime crisis.
"I must admit I am a little uncomfortable (with sovereignwealth funds)… but I must admit there is very little evidencethat they are being used inappropriately," Greenspan said.
"On balance I think they are desirable," he added.
China, Kuwait and Singapore are among the foreigngovernments that have pumped money into U.S. companies inrecent weeks.
Citigroup Inc said last month it would get nearly $7billion from Singapore Investment Corp Pte and $3 billion fromthe Kuwait Investment Authority.Merrill Lynch said itreceived $6.6 billion from Kuwait, the Korean Investment Corpand Japan’s Mizuho Financial Group.
(Editing by Renato Andrade)
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