Stiglitz: "Alan Greenspan made a mess"

Nobel Prize winning economist Joseph E. Stiglitz was interviewed on Bloomberg today and had a few unkind words for former Fed chief Alan Greenspan (hat tip CB).

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When asked what the Fed might do now, given the current predicament of a slowing economy and falling home prices, the former chief economist at the World Bank replied, "Well, there's an old joke, when you say, 'How to get from here to there', and they say, 'Well, I wouldn't begin from here', but we've got to".

From the Bloomberg story:

Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy risks tumbling into recession because of the "mess" left by former Federal Reserve Chairman Alan Greenspan.

"I'm very pessimistic," Stiglitz said in an interview in London today. "Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time. He supported the tax cut in 2001, which is the beginning of these problems. He encouraged people to take out variable-rate mortgages."

Stiglitz said there is a 50 percent chance of a recession in the U.S. and that growth will certainly slow to less than half of its 3 percent potential. A worldwide jump in credit costs following the collapse of the subprime mortgage market is choking off finance to American consumers.

During Greenspan's 18 years in charge of the Fed, the U.S. endured only two recessions, both lasting less than a year, and enjoyed the longest economic expansion in U.S. history. The collapse of the U.S. housing market has thrown a spotlight on the record debt levels that helped to fuel the boom.

After the 2001 recession, the Fed cut its benchmark rate to a four-decade low of 1 percent. That move, along with a hands- off approach to regulation, has brought Greenspan under fire as the bursting of the housing bubble and the subprime mortgage crisis again threaten to sink the economy.

Who would have ever thought that a massive housing boom enabling millions of American consumers to borrow against their houses to buy cheap imported goods might cause problems down the road?