Alan Greenspan may appear to have a gift for the obvious. He says that a recovery in the housing market is necessary for a recovery of global credit markets. Since subprime and other mortgage instruments have pulled down earnings at a number of huge banks and brokerages, that would not seem to be any news.
"The sooner we can get home prices in the United States stabilized, the sooner we will resolve all questions," Greenspan said, according to Reuters.
Greenspan may be wrong. If banks can wash mortgage problems through their balance sheets by aggressive write-downs, they may be able to build a firewall against rising default rates. The federal government may also step in through the FHA to help refinance or "guarantee" a number of home loans.
The comments also neglect to acknowledge that most large companies have record sums of cash on their balance sheets, by one measure over $600 billion at the firms in the S&P Industrial Index. Earnings at many companies may drop but their core finances probably will not be threatened.
Housing may be important, but it is only one leg on the stool. The government's biggest job now is to make sure that all the other legs are healthy.
Douglas A. McIntyre is an editor at 247wallst.com.
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