Friday, August 1, 2008

Paulson vs Greenspan

I don't know how it's even possible to be an average guy who believes everything he reads. Just yesterday, I was filled with happy economic fervor as Hank Paulson helped us reject pessimism in the economy:

Paulson says housing remains biggest threat

Paulson predicted in a speech to a Washington audience that the economy will continue growing at a moderate pace for the rest of this year, despite housing slump-induced problems.
... Paulson said he expected foreclosures and the level of unsold homes would likely remain "substantially elevated this year and next and home prices are likely to decline further on a national basis."

Nevertheless, he predicted that the bulk of the housing slump would be over in months, instead of years.

Great! We only have a few months until this whole housing-induced economic nightmare is over. So I was whistling among the flowers with Disney birds swirling around my head when this article started raining on my parade:

"'Fannie and Freddie are a major accident waiting to happen,' Greenspan said. He said that they are an 'unstable structure' and should not continue to exist as quasi public/private entities. He suggested that Fannie and Freddie should be nationalized and then broken up into a group of smaller entities, which could be sold back into the market.

Greenspan also said the U.S. is on the brink of recession, and a key factor that could tip the economy is the slowing growth in the world economy. He also made a rather disturbing comment about the current financial crises.

'We've had huge amounts of liquidity engendered by central banks, and it's getting increasingly evident that this is a once-in-a-century type of phenomenon. It is not the standard liquidity crisis we've seen in the past. It's verging on the issue of solvency,' he said."

So on the one hand, I have Paulson telling me this whole mess is going be behind us Real Soon Now, and then Greenspan tells me to go out and nationalize Fannie and Freddie, and implied that the shareholders are going to be zeroed out.

I can only conclude that Greenspan rejected Paulson's rejection of pessimism.

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