Greenspan Predicts the Bottom

Greenspan comes as a response to the federal government's assertions that it would offer monetary assistance if either of the two mortgage powerhouses request it.

By: James R. Lindamood

Former Chairman of the Federal Reserve Alan Greenspan has been very vocal about his opposition to the bill supporting Freddie and Fannie. In his latest comments, Mr. Greenspan has announced his belief that the economy will begin turning around in the first half of 2009. Mr. Greenspan has reportedly been critical of the government's “bailout” of the mortgage giants.

“They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted...as five or ten individual privately held units.” Ideally, the government would auction off these 5 or 10 separate companies after getting them up and running at a profit. The commentary from Greenspan comes as a response to the federal government's assertions that it would offer monetary assistance if either of the two mortgage powerhouses request it.

With many private finance companies shunning new mortgage business, the two Government Sponsored Entities have attained a place of far greater importance in recent months. Between the two of them, they hold roughly half the US mortgage debt, amounting to nearly $5 trillion in US dollars. There is some thought that the US economy would react badly if the US government nationalized the two companies and restructured them, but Greenspan believes this to be unfounded. According the Mr. Greenspan, foreign governments and investors do not believe that the government would fail to step in if the mortgage giants needed help, and nationalization is the only logical step. For all intents and purposes, according to Mr. Greenspan, if the US government were to nationalize the two companies, the only changes would be on paper.