Greenspan Calls This the Worst Economy and Lehmann Declares Bankruptcy

In an interview with ABC’s This Week Alan Greenspan portrayed a very grim picture of the US Economy and said that this is “by far” the worst situation that he has seen in his career.

This comes on the eve of the 158 year old Lehman Brothers filing Chapter 11 bankruptcy. The firm had to go down, after it failed to find itself a buyer despite long negotiations. What is interesting is that most buyers walked away  after the US Treasury refused to provide any financial aid for Lehman, like it had done for Bear Sterns earlier.

When asked about his take on this Greenspan said “Rising speculation that Lehman Brothers Holdings Inc. may fail is generating less concern among investors than when Bear Stearns Cos. imploded in March.” He said that the conditions during the Bear Sterns bail-out were once in a “once in a half century, probably once in a century type of event.”

The housing market crash has created a downward spiral which has taken down a lot of financial giants and Greenspan expects that we may see one more major financial institution go down. His expectation is that the prices in the US housing market need to stabilize before the crisis can be over and this will happen around early next year.

In a nutshell according to Greenspan:

  • How bad is the crisis? – This is the worse that he has seen.
  • Will Lehman be the last victim? – We may see one more financial institution go down
  • How will it get over? – When the prices in the US housing market stabilizes
  • When will that happen? – Think early next year

This matches very closely with what a lot of other pundits are also saying and right now early January 2009, does not look that far away either.

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