Greenspan is arguing that the recent credit turmoil will lead to a big drop in US house prices – possibly more than 10 %. He believes the market has been under-pricing risk for years, and the US sub-prime defaults have finally triggered a correction.
The bad news for UK homeowners is that big Al thinks they are even more likely to be chewed up by the credit crunch. More of them are on variable rate mortgages, so they will be more vulnerable as inflation and interest rates shoot up, he reckons.
Not everyone is in thrall to the world’s most famous central banker. Some think Greenspan helped to fuel the housing bubble by failing to increase US interest rates at the start of the decade (naturally he disagrees, suggesting the influx of savings capital from China put the situation out of his control). Others suggest that now he’s out of the game, he ought to be keeping his opinions to himself.
Equally, the picture may not be as gloomy as the all-seeing one makes out. Despite the remarkable run on Northern Rock, none of the other big UK lenders have got long queues outside their doors. Most other banks were much less reliant on the wholesale financial markets, so they are better placed to ride out the storm. There’s also no sign so far that the quality of the loans doled out in the UK is anything like as bad as those across the pond.
And although mortgages are bound to get more expensive, it doesn’t necessarily mean the demand for housing will dry up. Greenspan identified London and the South-East as the areas most at risk – but many commentators believe the continuing success of the City, not to mention the forthcoming Olympics, will continue to bring people flocking to the capital.
Still, Greenspan remains an influential voice. His memoir, which sees him recount his life story and pontificate on the future of the world economy, is already grabbing headlines – particularly over his criticism of President Bush’s public spending, and his assertion that the Iraq war is ‘largely about oil’.
But perhaps the most shocking revelation of all: Greenspan apparently wrote most of his book longhand while lying naked in a bathtub, using a waterproof pen. Now there’s an image we could have lived without…