Greenspan: Recession Likely, But May Be Less Severe

Despite the recent stabilization in the American economy, a recession will more than likely occur, a former chairman of the Federal Reserve, Alan Greenspan, told the Financial Times yesterday.

Mr. Greenspan said "there is a greater than 50% probability of recession." But, he said, "that probability has receded a little and I think the probability of a severe recession has come down markedly," according to the Financial Times.

He also said that it is "too soon to tell" whether the worst of America's financial difficulties are over, and that housing market would determine whether or not the country would soon recover, the Financial Times reported.

Mr. Greenspan predicts that the price of houses will drop another 10% from their February levels, thus dropping 25% from their most expensive point. It's possible prices may fall by an additional 5%, he told the Financial Times, if the economy is weak or the market overshoots.

"Such house price declines imply a major contraction in the level of equity in owner-occupied homes, the ultimate collateral for mortgage-backed securities," he said.

Mr. Greenspan's comments are in contrast to more optimistic economists who have adjusted their outlooks to reflect some recent good news in the economy. Yesterday in Tokyo, the Treasury's assistant secretary for international affairs, Clay Lowery, said the Federal Reserves efforts to revive the economy are working, Bloomberg News reported. "Markets appear to be gaining confidence and the availability of credit has improved modestly," he said.