As central bankers and prominent economists gather on Friday in Wyoming to assess Alan Greenspan’s 18-year stewardship of the US economy, the Federal Reserve chairman is expected to win widespread plaudits for fostering solid economic growth while deftly managing several financial crises. But the final chapter of Greenspan’s legacy might be based on how well the central bank manages what many experts say is a crisis looming on the horizon: a housing bubble. Many experts say the nation’s real estate market draws disturbing similarities to stocks in the late 1990s — a market driven to unsustainable price levels by what Greenspan famously called ‘‘irrational exuberance.’’ They fear a similar ending: a sharp fall in prices that could bite the net worth of many Americans and trigger a recession. And some experts say Greenspan deserves at least some of the blame for fostering housing market conditions that the Fed chairman himself has called ‘‘frothy.’’ The Fed, they say, hasn’t done enough to damp real estate speculation, while maintaining cheap credit for too long. Although Greenspan has warned of the pitfalls of ‘‘interest-only’’ loans and other riskier mortgages, the central bank should be doing more to tighten lending standards and discourage their use, the experts say. ‘‘The Fed deserves some criticism for its handling of the stock bubble and now the housing bubble,’’ says Mark Zandi, chief economist for Economy.com, a research firm. Among other things, Zandi says, Greenspan should be ‘‘talking more forcefully’’ about housing conditions while tightening lending standards. ‘‘The more he waits, the more the bubble inflates, the more risk’’ of a blowup, Zandi says. The issue of how the central bank handles any housing bubble is expected to be discussed at the 29th annual Fed conference in Jackson Hole, Wyo. It will be the 79-year-old chairman’s last official appearance at the two-day gathering before his retirement in January. The conference, hosted by the Federal Reserve Bank of Kansas City, has become one of the most important forums to discuss key economic issues. And this year’s theme, ‘‘The Greenspan Era: Lessons for the Future,’’ is expected to fuel speculation about who will succeed the second-longest-serving Fed chairman. Three prominent economists often cited as among the leading contenders are expected to attend the gathering. They are Martin Feldstein, a former Reagan administration economic adviser and now Harvard University economist; Ben Bernanke, a former Fed official and now chairman of President Bush’s Council of Economic Advisors; and Glenn Hubbard, Bush’s top economic adviser during his first term and now dean of Columbia University’s business school. Many economists who praise Greenspan’s overall record nonetheless are critical of his handling of the housing market. The Fed chief made three ‘‘major’’ mistakes, including fostering banking regulations that helped precipitate today’s low mortgage rates, they say. — NYTFed watching asset-price rises closely: GreenspanJACKSON HOLE, Wyo: Federal Reserve Chairman Alan Greenspan warned on Friday that increased buying power fueled by higher prices for assets like stocks and homes could disappear if investors turn cautious. In remarks prepared for delivery to the annual central bank symposium sponsored by the Kansas City Federal Reserve, the Fed Chief said the vast increase in market value of assets stemmed partly from faith that economic risks were low. ‘‘Such an increase in market value is too often viewed by market participants as structural and permanent,’’ said Greenspan. ‘‘To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy.’’ Reuters
