Greenspan Says U.S. House Prices to Drop More; Economy Can Cope

By Vivien Lou Chen

Sept. 17 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said in an interview with CBS Corp.'s ``60 Minutes'' that the U.S. economy will probably be able to cope with continued declines in home values.

``Prices are going to fall further, but there is an underlying strength in the United States,'' Greenspan said in the program that aired yesterday. ``When you look around the world, even with this extraordinary credit problem, the economies seem to be holding up.''

Greenspan, 81, ran the Fed for 18 years until January 2006 and released his book, ``The Age of Turbulence: Adventures in a New World,'' today. In the interview, Greenspan defended himself against criticism that he held interest rates too low for too long, and failed to restrict subprime mortgage-lending practices that have led to a jump in foreclosures.

He also gave an account of his first date with his wife, NBC Universal Inc. reporter Andrea Mitchell, and expressed disappointment with the policies of his friend, Vice President Dick Cheney. In addition, Greenspan advised U.S. automakers to build better cars.

On the fallout from defaults on subprime mortgages, Greenspan said the economy will ``get through this particular credit crunch. We always do. This is a human behavior phenomenon, and it will pass.''

``The fever will break and euphoria will start to come back again,'' he concluded.

Answer to Critics

Greenspan said he didn't think the Fed could have done much about subprime lending practices and admitted he ``didn't really get'' the significance of the issue until late in 2005 and 2006.

He said former colleagues who now say the Fed was wrong to hold down interest rates in 2003 and 2004 ``were mistaken.''

``It was our job to unfreeze the American banking system if we wanted the economy to function,'' he said. ``This required that we keep rates modestly low.''

The Fed kept the federal funds rate at a 46-year low of 1 percent from June 2003 to June 2004. It's been at 5.25 percent since June 2006. Analysts surveyed by Bloomberg News predict current Fed Chairman Ben S. Bernanke will cut rates at least twice this year. The policy-making Federal Open Market Committee meets on Sept. 18.

Asked about auto executives who are seeking lower rates, Greenspan said they should ``focus on selling, creating better cars for their customers.''

Greenspan and his wife described their first date in 1984, when he invited her to his apartment after dinner to show her an essay he had written on the Sherman Antitrust Act of 1890.

``Would you believe he did?'' said Mitchell.

``It worked,'' said Greenspan.

As for his old friend Cheney, Greenspan said he wished the vice president would show more fiscal restraint.

``He was much less focused on restraining spending than I would have liked,'' Greenspan said.

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net .

Last Updated: September 17, 2007 00:14 EDT

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