Greenspan: American economy ‘on the edge’

On that occasion, he said subprime mortgages were “a valuable product” that helped increase home ownership in the U.S., especially among minorities.

However, he said what began as a niche part of the mortgage market grew as hedge funds sought out the collateralized paper associated with the loans.

Greenspan said recently it was the repackaging and sale to investors of the risky home loans — not the subprime loans themselves — that were to blame for the global credit crisis.

Earlier Thursday, Bernanke told the Senate Banking Committee the one-two punch of housing and credit crises has strained the economy, and he forecast sluggish growth in the near term.

Given all the dangers facing the economy, he said, the Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.”

The Federal Reserve, which started lowering a key interest rate in September, has recently turned much more aggressive. Over the span of eight days in January, it slashed rates by 1.25 percentage points — the biggest one-month rate reduction in a quarter-century. Economists and Wall Street investors believe the Fed will cut rates even more at its next meeting in March and probably again in April.

Under Greenspan, the U.S. Federal Reserve slashed interest rates between early 2001 to the summer of 2003 to their lowest level in decades.

Critics have complained Greenspan failed to act in his role as a regulator during the subsequent housing boom in the U.S., as easy credit spurred subprime home loans.

The former Fed chairman, who served in the role for 19 years — from 1987 to 2006 — has acknowledged he failed to see early on the potential danger of the increase in mortgages to people with questionable credit histories.

Greenspan now works as a private consultant for firms through his company, Greenspan Associates LLC.

He also has a best-selling new book, “The Age of Turbulence: Adventures in a New World.”

Don't miss this on MSNBC.com Pass it on: Sons of infertile men may be next The eight biggest Olympic marketing debacles Reality show judges range from wise to wacko Cosmic Log: Is this your jetpack? Forget your inhibitions: World's sexiest islands

MORE FROM STOCKS & ECONOMY

Stocks & economy Section Front

Stocks rise after slew of economic reports Jobs, spending data hint at recovery New-home sales rise to highest level in a year Consumers log stronger-than-expected rebound Durable goods orders fall unexpectedly Deere’s profit falls after drop in sales Tiffany raises forecasts for rest of the year Energy prices on the rise despite huge supply Recovery's pace slower than first thought Fed sees gradual economic recovery Stocks & economy Section Front   Add Stocks & economy headlines to your news reader: