Former Federal Reserve Chairman Alan Greenspan said on Tuesday that falling U.S. home prices and high inventories of unsold properties presented a major risk to the U.S. economy and financial markets.
Greenspan said he was not "sanguine" about the how quickly the glut of unsold homes could be reduced.
"We still need to accelerate the rate of inventory liquidation, and that will mean bringing housing starts down and sales up. We have a long way to go," said Greenspan, who was answering questions at a CEO conference in Tokyo via video link from Washington.
"The critical issue on the whole subprime, and by extension the whole financial system, rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventories in the United States," he said.
The drag from the housing market's downturn and the surge in defaults among subprime mortgage borrowers has hit credit markets around the world and prompted the Federal Reserve to slash interest rates to limit the economic fallout.
Greenspan said about $900 billion of subprime mortgages have been securitized into fixed-income instruments, and the excess level of unsold homes is driving the price declines that are eroding the value of the securities backed by those mortgages.
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