Goldman Sees $2T Credit Shortfall, Major Slowdown

Nobel winner, investment firm warn of growing risk
By Jim O'Neill,  Newser User
Posted Nov 16, 2007 10:44 AM CST
Nobel Prize-winning economist from Columbia University, Joseph Stiglitz.   (Getty Images)
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(Newser) – The subprime mortgage crisis that has cost financial companies $400 billion and triggered what one banker is calling the worst housing market since the Great Depression will force a $2 trillion credit squeeze that could set off a “substantial recession” in the US, reports Bloomberg. Goldman Sachs said the economy could grow a sluggish 1.9% in 2008.

Nobel-prize winning economist Joseph Stiglitz, meanwhile, says ex-Fed Chairman Alan Greenspan, who stepped down in 2006, “really made a mess of all this.” Greenspan’s advocacy of variable-rate mortgages set off a “consumption binge” fueled by easy access to credit. He also faulted President Bush’s 2001 tax cut, calling the administration’s fiscal policy an example of “macro economic mismanagement.”