Alan Greenspan Admits Subprime Crisis Was ‘Waiting to Happen’

Daily Reckoning - We pass along this from Julian H. Robertson, one of the smartest people in the hedge fund industry. The economy is headed for one “doozy of a recession”, says he.

Colleague Steve Sarnoff adds his two cents on the latest market happenings, saying, “Stocks slipped sharply on Friday and this morning, as disappointment, worry, and fear over housing, credit, currency, recession, and inflation spread like southern California wildfire. The financial media fans investors’ fear through the markets like Santa Ana winds funneling fire through dried out coastal sage and chaparral canyons.
 
“Prices move naturally from resistance to support and that is simply what is going on here. The pressure is on over the near-term, but watch how the news will change (sudden easing of fears) once technical support (demand) comes in.”
 
Here’s our old Fed chief, Alan Greenspan, commenting on the effects of the credit bubble that he, more than anyone, created:

“The financial crisis that erupted on August 9 was an accident waiting to happen,” Greenspan said in a speech yesterday. “Credit spreads across all global asset classes had become suppressed to clearly unsustainable levels.

“Something had to give.”

Well, yes. Something has to give. We’ve said as much ourselves. Then again, we didn’t control short-term interest rates during the long period in which pressure was building up. We weren’t the ones with our hands on the credit throttle, shifting the lever to ‘Full Speed Ahead’ – even as the rivets began to pop. And we weren’t the one who reassured the public that all would be well, either.

But Alan Greenspan is a marvel. We admire him. Who else would have the chutzpah…the gall…the cheek?

He continued: “If the crisis had not been triggered by a mispricing of securitised US subprime mortgages, it would eventually have erupted in some other sector or market.”

He makes it sound as though he played no part in it…as if it were an act of God when a credit expansion comes to an end. And then, he adds a warning:

“If the pernicious drift toward fiscal instability is not arrested and is compounded by a protectionist reversal of globalisation, the current account adjustment could be quite painful for the United States and our trading partners.”

That Greenspan! What a character! If the authorities don’t get control of this thing, he says, it could hurt.