Greenspan: American economy ‘on the edge’

updated 2:22 p.m. ET Feb. 15, 2008

HOUSTON - Former Federal Reserve Chairman Alan Greenspan said Thursday night the American economy is “clearly on the edge” of a recession, and he pointed to the depressed housing market as a primary culprit.

In dinner remarks to about 1,100 energy industry executives, academics and others, Greenspan said the odds are 50 percent or better the country is headed toward a recession. His prediction came several hours after his Federal Reserve successor, Ben Bernanke, told Congress the economy is deteriorating, but he still looks for slow growth as 2008 transpires.

Greenspan said the reason the recent credit crunch — triggered by the subprime lending debacle — hasn’t hit U.S. businesses particularly hard is because they’ve been operating in a time of high cash flows, minimizing their need for such credit options.

“If it weren’t for the fact that business was in such extraordinary good shape before this problem hit, I don’t think we’d be questioning at this stage whether we’re in a recession,” Greenspan said during a question-and-answer session with Daniel Yergin, chairman of Cambridge Energy Research Associates, the Massachusetts-based consultancy that sponsored the dinner.

“We’d be talking about how long and how deep,” he said. “And we’re not there yet.”

Greenspan, 81, gave no prepared remarks.

The collapse of the housing market, sour mortgage investments and much harder-to-get credit are weighing heavily on the economy. Foreclosures have hit record highs, and banks have racked up multibillion-dollar losses.

Greenspan said he thinks the housing market will continue to erode until the cause of the deterioration ends.

“Where all the problem is coming from is the continuous marking down of the value of those subprime securities,” he said. “Until we stabilize the price level of homes ... you’re going to continuously get loss estimates” from banks and other financial institutions.

When might the housing crisis hit rock bottom, Yergin asked.

The country still has “a long way to go,” Greenspan responded.

In a speech a few weeks ago in Canada, Greenspan also said the odds of a U.S. recession were 50 percent or “slightly more.”

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