U.S. at Recession Edge But Not There Yet: Greenspan

 
 
By Reuters -  |  Posted 2008-01-25
 
 
 

VANCOUVER, British Columbia (Reuters) - The United States is at the edge of a recession, with the odds at 50 percent or possibly higher, former Federal Reserve Chairman Alan Greenspan said on Thursday.

"The odds have definitely moved up from a year ago when I was talking of about a third," Greenspan told a financial audience in Vancouver.

"I think we are now at a point that we are at the edge or over." 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 earlier in the month, and he acknowledged that it was very difficult to predict exactly when the economy might enter a recession or was actually in one.

The former Fed chairman said a lesson learned from previous downturns in the economy and financial markets - such as after the September 11, 2001 attacks - was the need to avoid protectionist trade policies.

"The economy is exceedingly more resilient than in the past," Greenspan said, when asked if he thought if a recession would be shallow or deep, adding later "for that reason I would argue for a relatively shallow recession."

On the issue of the subprime mortgages, which are at the heart of the current economic turmoil, Greenspan said that although the loans were risky, he believed that they were worth the risk as they helped broaden home ownership, especially among minorities.

The "real big surprise" to him was how the subprime crisis migrated across borders to other parts of the world because of securitization -- where the mortgages were bundled together for sale through complex financial instruments.

Greenspan gave a cautious thumbs up to the recent injections by sovereign wealth funds, or government-controlled funds, of billions of dollars in exchange for stakes in a number of U.S. banks hard-hit by the subprime crisis.

"I must admit I am a little uncomfortable (with sovereign wealth funds)... but I must admit there is very little evidence that they are being used inappropriately," Greenspan said.

"On balance I think they are desirable," he added.

China, Kuwait and Singapore are among the foreign governments that have pumped money into U.S. companies in recent weeks.

Citigroup Inc said last month it would get nearly $7 billion from Singapore Investment Corp Pte and $3 billion from the Kuwait Investment Authority.Merrill Lynch said it received $6.6 billion from Kuwait, the Korean Investment Corp and Japan's Mizuho Financial Group.

(Editing by Renato Andrade)

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