Dec. 16 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said he favors spending U.S. government money to bail out mortgage borrowers who risk losing their homes because they can't make payments.

Greenspan, speaking on ABC's ``This Week'' program aired today, said cash bailouts, while creating a larger budget deficit, have the advantage of helping homeowners without distorting property prices or interest-rates on mortgages.

``Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,'' Greenspan said. ``It's far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it'll drag this process out indefinitely.''

Greenspan's suggested approach differs from that of Treasury Secretary Henry Paulson, who negotiated a freeze on the interest rates of some subprime mortgages without pledging any government money to help homeowners or banks.

Greenspan, who was Fed chairman for almost two decades until Ben S. Bernanke took over early last year, repeated that recession risks are rising.

``The probabilities of a recession have moved up to close to 50 percent -- whether it's above or below is really extraordinarily difficult to tell,'' Greenspan said.

In a Dec. 13 interview with National Public Radio, he said the economy is ``getting close to stall speed.'' On Nov. 7, he told a conference in Sao Paolo that the chances of a recession were ``less than 50-50.''

Growth Forecast

U.S. economic growth will slow to 1 percent in the fourth quarter as consumer spending cools and the housing slump enters its third year, according to a survey of 63 economists by Bloomberg News taken Dec. 3 to Dec. 10. The world's largest economy grew at a 4.9 percent pace from July through September.

Spending, which accounts for more than two-thirds of the economy, will grow in 2008 at the slowest pace in 17 years as higher fuel costs and falling home values limit consumers' buying power, economists predict.

President George W. Bush announced this month that Paulson and other members of his administration had reached an agreement with the mortgage industry to help as many as 1.2 million homeowners avoid foreclosure when their adjustable-rate mortgages jump to higher rates.

Working with Paulson and the government's housing regulators, lenders and the companies who manage home loans agreed to freeze some adjustable mortgages at current rates for five years. Others will be given help refinancing or qualifying for loans backed by the Federal Housing Authority.

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

Last Updated: December 16, 2007 13:34 EST