Former Federal Reserve Chairman Alan Greenspan is again trying to spook financial markets. On Thursday, he turned his attention to the sub prime market. He declared that there was a risk that rising defaults in sub prime mortgage could spill over into other sectors. Greenspan conceded that it was "hard to find any such evidence" about spillovers from housing yet, but he added, "You can't take 10 percent out of mortgage originations without some impact." Greenspan felt that the downturn in U.S. housing markets stemmed more from high housing prices than from a decline in mortgage quality.

For a few weeks now, Greenspan has been pouring out doom and gloom about the US economy. Previously, he announced that a recession by the end of this year was possible, undermining the soothing words of his successor – Ben Bernanke – who is busy talking the US economy up. Sadly, Greenspan does appear to be right. Increasingly, US macroeconomic data is pointing towards a major slowdown in activity.


However, Greenspan is not prepared to take any responsibility for his role in the deteriorating economic prospects for the US economy. He was the Fed Chairman when interest rates were slashed to just one percent. He was in charge when housing prices soared, and sub prime lenders were prepared to borrow money to anyone who could show a beating pulse. He was the man that unleashed the inflationary beast and left it to Bernanke to tie it down with a sustained hike in interest rates.

Ultimately, Greenspan is proof that one’s reputation is really just a matter of timing; get out when things are good, and everyone thinks you are a star, but if you hang on when the ship is sinking, then everyone associates you with failure.