Former Federal Reserve chairman Alan Greenspan said he favors spending government money to rescue Americans who are at risk of losing their homes because they can't make mortgage payments.
Greenspan, speaking on ABC's This Week program that aired yesterday, said cash bailouts, while creating a larger budget deficit, have the advantage of helping homeowners without distorting property prices or interest rates on mortgages.
"Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this," Greenspan said. "It's far less damaging to the economy to create a short-term fiscal problem -- which we would -- than to try to fix the prices of homes or interest rates. If you do that, it'll drag this process out indefinitely."
Greenspan's approach differs from that of Treasury Secretary Henry Paulson, who negotiated a freeze on the interest rates of some subprime mortgages without pledging any government money to help homeowners or banks.
"Alan Greenspan has followed two propositions through his life: A smaller government is better, and a market economy operates on trust," said Vincent Reinhart, former head of the Fed's monetary affairs division and now a resident scholar at the American Enterprise Institute in Washington. "I think he was suggesting that it would be better to sacrifice the first -- spend more, than the second -- interfere with contracts."
The former chairman didn't specifically mention the Bush administration's plan, and wasn't asked about it directly.
MELTZER DIFFERS
Allan Meltzer, professor of political economy at Carnegie Mellon University in Pittsburgh, said Greenspan's proposal for a cash bailout might cost "hundreds of billions" of dollars and would reward risky behavior.
"It is not a good idea for the government to bail out people who make mistakes," said Meltzer, the author of a 2002 book on the early history of the Fed.
"The markets are beginning to come to grips with this and bailing them out is a mistake -- not a small one but a big one," Meltzer said.
Greenspan, who was Fed chairman for almost two decades until Ben Bernanke took over early last year, repeated that recession risks are rising.
"The probabilities of a recession have moved up to close to 50 percent -- whether it's above or below is really extraordinarily difficult to tell," Greenspan said.
In a Dec. 13 interview with National Public Radio, he said the economy is "getting close to stall speed." On Nov. 7, he told a conference in Sao Paolo that the chances of a recession were "less than 50-50."
COOLING EXPANSION
US economic growth will slow to 1 percent in the fourth quarter as consumer spending cools and the housing slump enters its third year, according to a survey of 63 economists by Bloomberg News taken between Dec. 3 and Dec. 10. The world's largest economy grew at a 4.9 percent pace from July through September.
Spending, which accounts for more than two-thirds of the economy, will grow next year at the slowest pace in 17 years as higher fuel costs and falling home values limit consumers' buying power, economists predict.
US President George W. Bush announced this month that Paulson and other members of his administration had reached an agreement with the mortgage industry to help as many as 1.2 million homeowners avoid foreclosure when their adjustable-rate mortgages jump to higher rates.
Working with Paulson and the government's housing regulators, lenders and the companies who manage home loans agreed to freeze some adjustable mortgages at current rates for five years. Others will be given help refinancing or qualifying for loans backed by the Federal Housing Authority.
The CIA has a message for Chinese government officials worried about their place in Chinese President Xi Jinping’s (習近平) government: Come work with us. The agency released two Mandarin-language videos on social media on Thursday inviting disgruntled officials to contact the CIA. The recruitment videos posted on YouTube and X racked up more than 5 million views combined in their first day. The outreach comes as CIA Director John Ratcliffe has vowed to boost the agency’s use of intelligence from human sources and its focus on China, which has recently targeted US officials with its own espionage operations. The videos are “aimed at
STEADFAST FRIEND: The bills encourage increased Taiwan-US engagement and address China’s distortion of UN Resolution 2758 to isolate Taiwan internationally The Presidential Office yesterday thanked the US House of Representatives for unanimously passing two Taiwan-related bills highlighting its solid support for Taiwan’s democracy and global participation, and for deepening bilateral relations. One of the bills, the Taiwan Assurance Implementation Act, requires the US Department of State to periodically review its guidelines for engagement with Taiwan, and report to the US Congress on the guidelines and plans to lift self-imposed limitations on US-Taiwan engagement. The other bill is the Taiwan International Solidarity Act, which clarifies that UN Resolution 2758 does not address the issue of the representation of Taiwan or its people in
US Indo-Pacific Commander Admiral Samuel Paparo on Friday expressed concern over the rate at which China is diversifying its military exercises, the Financial Times (FT) reported on Saturday. “The rates of change on the depth and breadth of their exercises is the one non-linear effect that I’ve seen in the last year that wakes me up at night or keeps me up at night,” Paparo was quoted by FT as saying while attending the annual Sedona Forum at the McCain Institute in Arizona. Paparo also expressed concern over the speed with which China was expanding its military. While the US
SHIFT: Taiwan’s better-than-expected first-quarter GDP and signs of weakness in the US have driven global capital back to emerging markets, the central bank head said The central bank yesterday blamed market speculation for the steep rise in the local currency, and urged exporters and financial institutions to stay calm and stop panic sell-offs to avoid hurting their own profitability. The nation’s top monetary policymaker said that it would step in, if necessary, to maintain order and stability in the foreign exchange market. The remarks came as the NT dollar yesterday closed up NT$0.919 to NT$30.145 against the US dollar in Taipei trading, after rising as high as NT$29.59 in intraday trading. The local currency has surged 5.85 percent against the greenback over the past two sessions, central
RSS