Alan Greenspan, Money Honey and the credit crunch

This morning's FT has an informative article written by former Federal Reserve governor Alan Greenspan, where he describes the current crisis in financial markets as "the most wrenching since the end of the second world war" Greenspan feels that the crisis will end only when home prices stabilise and the equity value in homes supporting troubled mortgage securities also begin to stabalise. That could and most probably will take years, a process he describes as "inventory overhang".

Home prices have been receding rapidly under the weight of this inventory overhang. Single-family housing starts have declined by 60 per cent since early 2006, but have only recently fallen below single-family home demand. Indeed, this sharply lower level of pending housing additions, together with the expected 1m increase in the number of US households this year as well as underlying demand for second homes and replacement homes, together imply a decline in the stock of vacant single-family homes for sale of approximately 400,000 over the course of 2008.
The pace of liquidation is likely to pick up even more as new-home construction falls further. The level of home prices will probably stabilise as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future. [my emphasis]

Ironically, in a video interview with FT.com, Maria 'Money Honey' Bartiromo, the controversial CNBC journalist doesn't seem to think that things are so bad as they may appear and that we may be 'talking ourselves into a recession'. While admitting that she has 'never seen as tight a credit market' as this one, Money Honey claims that she is getting a 'mixed story' in off record discussions and that there are 'optimists' amid the gloom.
On Greenspan, Money Honey indirectly takes a swipe, by claiming current fed chairman Ben Bernanke was 'handed a situation' that he had to deal with, but 'had nothing to do with'. She wouldn't go as far as to say the crisis was 'created by Greenspan', but claimed that Bernanke had brought 'transparency' to the fed.