Former Federal Reserve chairman Alan Greenspan predicts US house prices will begin to stabilize in the first half of next year, even as he faulted the government's rescue of mortgage market giants Fannie Mae and Freddie Mac, the Wall Street Journal reported on Thursday. “They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted... as five or 10 individual privately held units,” which the government would eventually auction off to private investors, Greenspan said in an interview with the Journal. In a high-profile rescue orchestrated in mid-July, the federal government offered to buttress Freddie and Fannie, the two largest providers of US home mortgage funding, with billions of dollars of capital if the companies were on the verge of collapse. Greenspan acknowledged that a government backstop for the shareholder-owned government-sponsored enterprises, or GSEs, was unavoidable, the paper said. Not only are the they crucial to the ailing mortgage market now, but the Fed-financed takeover of investment bank Bear Stearns Cos also made government backing of Fannie and Freddie debt “inevitable,” he said. As private finance has retreated from the mortgage sector, the importance of Fannie and Freddie has grown, and they own or guarantee almost half the country's $12 trillion in outstanding home mortgage debt. “There's no credible argument for bailing out Bear Stearns and not the GSEs,” Greenspan told the Journal in an interview, which was reported on Thursday. Fear that financial markets would react poorly if the US government nationalized the companies and assumed their nearly $5 trillion debt is unfounded, he said.
