Recession Risk Seen in Mortgage Misery

Top economist urges immediate rate cuts to avoid catstrophe
By Jonas Oransky,  Newser Staff
Posted Sep 2, 2007 1:23 PM CDT
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(Newser) – Mortgage woes could spark a serious recession, a prominent economist said yesterday. National Bureau of Economic Research President Martin Feldstein said that interest rates must be slashed heavily and quickly, or declining prices and weakening home equity withdrawal could hobble the economy, Reuters reports.

Feldstein, who was on the short list to head the Fed, did cite the moral hazard of bailing out the speculators who created the crisis, but said a cut as significant as 100 basis points might be necessary nonetheless. For his part, the Fed chairman maintains he won’t let innocent people suffer from an expanded crisis, and will act if the evidence demands it.