As central bankers and prominent economists gather today in Wyoming to assess Alan Greenspan's 18-year stewardship of the U.S. 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, these 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 in West Chester, Pa. 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 prestigious 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.
