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US recession risk highest
since 9/11: ex-Treasury secretary
AFP
Monday Aug 27, 2007
WASHINGTON: Former US Treasury secretary Larry Summers said
Sunday it was too early to declare the financial markets crisis
over and said chances had risen sharply of an economic downturn
in the United States.
Despite interventions by the US Federal Reserve last week which
appeared to reverse heavy selling pressure over the collapsing
US housing debt market, Summers said the risk of recession was
its highest since the immediate aftermath of the September 11,
2001 attacks.
"We certainly saw some repair and some return to normality
this week, but I think it would be far premature to judge this
crisis over for at least two reasons," Summers told ABC television.
"First, we can't yet know that there aren't more shoes to
drop in the financial area," he said, referring to the massive
loss of confidence in securitised housing loans as US real estate
prices sag.
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"Second, we haven't yet had the time to observe what all
this is going to mean for the real economy and for the actual
process of job creation in our economy.
"I do not think we yet have ... a basis of making a prediction
that there will be a recession, but I would say that the risks
of recession are now greater than they've been any time since
the period in the aftermath of 9/11."
Summers, who headed the US Treasury from 1999 to 2001 and then
was president of Harvard University until a year ago, criticised
the administration for not using government-backed mortgage lenders
to help homeowners facing default on their loans.
He said policy should not be targeted at protecting investors
or corporate lenders in the risky "sub-prime" sector,
which targets borrowers with patchy credit records.
"You know, the substantial majority of the firms that were
in the sub-prime mortgage business have already gone out of business.
Many of the firms that remain have seen their stock prices fall
by half or more," said Summers, now with the New York investment
bank DE Shaw & Co.
"But the focus shouldn't be on those firms. The focus should
be on the homeowner. The focus should be on the guy who bought
a mortgage," he said.
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