Greenspan `Mess' Risks U.S. Recession, Stiglitz Says (Update4)

By Reed V. Landberg and Paul George

Nov. 16 (Bloomberg) -- 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.

Greenspan, in a statement, defended his record and said Stiglitz's three criticisms are ``inaccurate or incomplete.''

The U.S. home-price surge resulted mainly from the ``dramatic'' drop in rates on long-term fixed-rate mortgages, which itself resulted from the broader decline in long-term interest rates, Greenspan said. More than two dozen countries have experienced similar price surges and drops in long-term rates, Greenspan said. ``The forces driving the boom are clearly global in nature,'' he said.

(Continued here.)