Greenspan favors bailout for distressed homeowners

WASHINGTON – Former Federal Reserve Chairman Alan Greenspan has come out in favor of a government bailout for Americans at risk of losing their homes because of rising mortgage payments.
“Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,” the former Fed chief said in comments aired yesterday on ABC’s “This Week,” according to Bloomberg News. He was not asked about, and did not specifically mention, the voluntary rate-freeze plan announced Dec. 6 by the Bush administration. (READ MORE)
“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,” Greenspan continued. “If you do that, it’ll drag this process out indefinitely.”
Vincent Reinhart, a former head of the Fed’s monetary affairs division and now a resident scholar at the American Enterprise Institute in Washington, D.C., said after the show that “Alan Greenspan has followed two propositions through his life: A smaller government is better, and a market economy operates on trust. I think he was suggesting that it would be better to sacrifice the first, spend more; than the second, interfere with contracts.”
On the show, Greenspan also reiterated his previous comments about the rising risk of recession, saying “the probabilities … have moved up to close to 50 percent – whether it’s above or below is really extraordinarily difficult to tell.”

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