Former Federal Reserve Chairman Alan Greenspan said on Tuesday the US economy was in recession, and said it would be appropriate to tap public funds to resolve the mortgage-related crisis that has helped pull the economy under.
In an interview with CNBC television in which he defended his chairmanship of the US central bank against charges that his policy missteps had laid the groundwork for the current crisis, Greenspan said Fed decisions on his watch were rationally constructed based on evidence at the time.
"I have no regrets on any of the Federal Reserve policies that we initiated back then because I think they were very professionally done," Greenspan said.
It is unfair to hold his Fed to task for the housing bubble or the current crisis in credit markets, because global market forces were at work to keep long-term interest rates low, not just Fed policies that brought short-term US interest rates down to multi-decade lows, he said.
"Clearly, certain of our anticipations of what would happen as a consequence of those policies were off but there's no way of avoiding that," he said.
Greenspan went farther than the Fed has by saying outright that the economy is in a recession, although he said it is too soon to say how deep or prolonged the downturn will be.
"Consumers are beginning to shrink in, the automobile markets are beginning to contract, production is beginning to ease, and we are in the throes of recession," he said.
The US economy will not stabilise until housing markets recover, Greenspan said. To speed that process, the Bush administration should look to the 1980s savings and loan crisis for lessons on settling the crisis by committing taxpayers' money to the project.
"I think if you're going to deal with a situation like this it's an issue for appropriated funds of the Treasury to set up something like the Resolution Trust Corporation, which as you remember was very successful in resolving the S&L crisis," Greenspan said.
The RTC was set up to liquidate assets of troubled savings and loan associations that had been declared insolvent by the Office of Thrift Supervision. It operated between 1989 and 1995 and closed or helped resolve hundreds of thrifts, many of which had gotten into trouble through sloppy lending practices.
The Bush administration so far has adamantly refused to commit public money to help settle a housing crisis in which millions of Americans are expected to lose their homes through foreclosure.
Greenspan has in recent days made a series of public statements defending his record at the Fed in light of criticism that a long period of low interest rates and a laissez-faire oversight approach led to reckless market behavior that resulted in the sharp housing correction and the ongoing credit freeze.
The Financial Times this week published an article of his entitled, "The Fed is blameless on the property bubble."
In an interview with The Wall Street Journal, Greenspan said, "I was praised for things I didn't do. I am now being blamed for things I didn't do."
Greenspan's office did not respond to a request for an interview on Tuesday. (Reuters)
US in recession, says Greenspan