At home in rural Kent, Moulton is plotting more mischief.

Sunday, September 30th, 2007

Jon Moulton, prince of buyouts, sides with tax man

By Simon Clark and Edward Evans Bloomberg News

Published: September 28, 2007

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LONDON: Jon Moulton, who helped start the two biggest buyout companies in Europe, was descending a narrow staircase beneath his Victorian mansion, which sprawls behind vineyards and horse chestnut trees in the English county of Kent.

“There’s a lot of stuff in here, lads,” he said, pointing to cellar walls lined with about 100 cardboard boxes of documents he has archived as tax records. The labels read: Dead Deals; Rejected Deals; Possible Deals.

Moulton, managing partner of the London-based private equity firm Alchemy Partners, has been criticizing rivals for keeping their tax dealings in the dark. That behavior, he said, threatens to lead to increased regulation that could destroy the business he helped create.

“It essentially gets to be an industry which is almost beyond the tax man,” he said.

As turbulence in the credit markets rattles the biggest takeovers of the year, Moulton is raising another alarm. He says that buyout firms have it too easy when it comes to paying taxes.

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“I had no appreciation myself of just how aggressive some of the players in the industry have been,” he said.

Moulton says he thinks that lawmakers in London and Washington may be on the right track in investigating whether to rewrite tax laws and crack down on firms benefiting from loopholes.

“Jon says the unthinkable, and more often than not he’s right,” said Jonny Maxwell, who leads a unit at Allianz, the biggest insurer in Europe that invests in private equity funds. “He doesn’t care if he bloodies the nose of the private equity establishment.”

In the British Parliament, John McFall, chairman of the Treasury Committee, is leading a panel of 17 legislators that is investigating the private equity industry. In particular, they are studying whether deal makers are abusing laws that let them pay capital gains tax as low as 10 percent on their profits rather than the 40 percent income tax.

In a hearing June 20, McFall blasted executives including Damon Buffini, a managing partner at Permira Advisers in London, for dodging lawmakers’ tax questions. “You guys are the really bright ones and are the masters of the universe,” McFall said. “I ask you how much you pay in capital gains tax, and you cannot tell me.”

Prime Minister Gordon Brown said Wednesday that he might close loopholes that benefit private equity. “Whenever there is a loophole that shouldn’t exist, we take action,” Brown told supporters attending the Labour Party’s annual conference in Bournemouth, England.

In the United States, where the chief executive of Blackstone Group, Stephen Schwarzman, and other private equity moguls are enjoying unprecedented earnings, Max Baucus, a Democrat who leads the Senate Finance Committee, and Charles Grassley, the panel’s top Republican, want publicly traded buyout companies to pay taxes at the 35 percent corporate rate, instead of the 15 percent capital gains tax that is applied to the profit of partnerships.

Lawmakers do not have to dig deep to make scapegoats of buyout firms, said Josh Lerner, a professor of investment banking at Harvard Business School. “The writing’s on the wall for private equity,” he said. “They’re looking for a new source of tax revenue, and from a political point of view, private equity is a very tempting target.”

In Britain, the GMB, a trade union that represents more than 600,000 workers, is trying to fuel a public backlash. Last year, its members paraded a camel outside the Holy Trinity church in South London, which is attended by Buffini, of Permira. Their message: It is easier for a camel to pass through the eye of a needle than for a rich man to enter heaven.

Moulton uses some of the same tax structures the GMB is criticizing. He invests through the Alchemy Investment Plan, a group of limited partnerships based in Guernsey. International companies can be based there without paying local taxes.

“The main reasons to register a company in Guernsey are secrecy and tax avoidance,” says Prem Sikka, an accounting professor at Essex University.

Moulton, who owns a house on the island, said he had chosen Guernsey because of its tax laws and administrative expertise. He said that he and his partners had paid all personal taxes due in Britain. “We’re in the same game as everybody else,” he said about the capital gains tax, without elaborating.

Moulton said he was airing the tax issue to head off changes that could gut private equity, a pillar of Britain’s financial services market, by driving deal makers to countries like Switzerland. He suggests an all-encompassing capital gains tax rate of 20 percent. “Get rid of the anomalies,” he said. “Be careful you don’t destroy the industry.”

(Page 2 of 2)

Financial services make up about 8.5 percent of the British economy, and the companies controlled by private equity firms account for 8 percent of all British jobs in private industry, according to the British Private Equity and Venture Capital Association.

“If you’ve got any elements of pride or patriotism, you’d be worried about maintaining the financial services here,” said Moulton, who helped start the firms that have grown into CVC Capital Partners and Permira. “The threat level to it is high.”

Moulton also objects to a law that lets British-based foreign investors avoid taxes on earnings held outside Britain.

“Why should somebody who’s been born and bred in the U.K., paid tax in the U.K. all their lives, end up paying more tax on a deal than some bloke who arrived two years ago or 20 years ago?” he said.

At home in rural Kent, Moulton is plotting more mischief. Walking from his vineyard on a sunny Saturday in July, he toyed with names for the wine from which he hopes to make a profit. Moulton Rothschild, a play on the French banking clan’s Mouton Rothschild, is his favorite.

“Even if they threaten legal action, it would be really good free publicity,” he said.

After spending this year chastising his buyout peers about debt and taxes, Moulton’s next fight may be fermenting.

http://www.iht.com/articles/2007/09/27/bloomberg/bxmoulton.php?page=2

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Credit derivatives growth slows

Saturday, September 29th, 2007

Credit derivatives growth slows

By Stacy-Marie Ishmael in New York

Published: September 27 2007 00:09 | Last updated: September 27 2007 00:09

The global market for credit derivatives grew 32 per cent in the first half and increased 75 per cent over the year to the end of June, the slowest rate of growth since 2003.

Credit derivatives volumes outstanding rose by almost a third, to $45,460bn at June 30 from $34,420bn at the end of last year, the International Swaps and Derivatives Association said on Wednesday.

Over the same period last year, the notional volume of contracts outstanding more than doubled.

Derivatives are contracts based on the prices of assets or linked to events such as changes in interest rates. Over-the-counter derivatives are privately negotiated contracts. Contracts to swap between fixed and floating interest payments, the biggest component of the over-the-counter derivatives markets, increased 38 per cent to $347,100bn over the year to June 30.

“We expect this strong volume to continue over the 2007 second half, as privately negotiated derivatives have provided liquidity and functioned efficiently through the recent volatility,” said Robert Pickel, chief executive officer of ISDA.

Volumes in equity derivatives, which include privately negotiated swaps, options and forward contracts, grew 40 per cent in the first half, and are up 57 per cent over the past year, to $10,100bn. Volumes were $7,180bn at year end.

The ISDA survey does not include trading since July, when investors piled into derivatives amid a shake-out in global credit markets.

Fears of a credit crunch over the summer triggered a surge in trading volumes for derivative index contracts, which allow investors to hedge against the risk of corporate default on loans.

Anthony Ryan, the US Treasury’s assistant secretary for financial markets, said at an ISDA conference in New York on Wednesday that financial innovations such as credit derivatives had benefited investors, allowing them to better manage and transfer credit risk, and offering enhanced liquidity and greater portfolio diversification. “The ability to securitise credit has expanded the sources of capital and credit for homeowners, business owners and other borrowers throughout the global economy,” Mr Ryan said.

But he warned that investors needed to do a better job of evaluating the risk posed by complex products.

“Insufficient understanding or failure to perform an independent and adequate due diligence prior to making an investment decision is simply unacceptable. That’s not investing – that’s gambling.”

Copyright The Financial Times Limited 2007

http://www.ft.com/cms/s/0/3cf263a4-6c74-11dc-a0cf-0000779fd2ac.html

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Economy Could Survive Oil @$100 a Barrel

Saturday, September 29th, 2007

How Economy
Could Survive Oil
At $100 a Barrel

Compared to 1980, U.S.
Is More Able to Handle
Once-Unthinkable Rise

By PETER FRITSCH and KELLY EVANS
September 29, 2007

The world economy has managed, with some indigestion, to swallow the rise of oil prices past $80 a barrel. How well could it survive $100 a barrel?

The answer is quite well — so long as several conditions still hold true. The price rise would probably have to be gradual. Inflation couldn’t get so bad as to force big interest-rate hikes. Oil-rich nations would need to pump their profits back into U.S. and European economies.

[Chart]

All of this has happened so far. The happy confluence may continue, though fears remain strong that high energy prices will tip the U.S. into recession.

A host of factors, including tight oil supplies and a weak U.S. dollar, suggest that oil prices have further to rise. Some analysts continue to believe that oil is destined to reach an all-time high, as measured in today’s dollars, of more than $101 a barrel. The record was set in 1980. On Friday in New York, the benchmark crude-oil futures price closed down $1.22, or 1.5%, to finish at $81.66, a little more than $2 off the all-time high, not adjusting for inflation.

High oil prices could lead to ugly consequences if they hit consumers’ pocketbooks — especially in the U.S., where the housing slump is already hurting the economy. Consumer spending has been the primary engine of growth in the U.S. in recent years.

Target Corp. was among the major retailers in the last week cutting sales forecasts. Target expects September sales at stores open at least a year to rise just 1.5% to 2.5%, down from an earlier expectation of 4% to 6% growth.

For all the concern, the world today is better equipped to swallow expensive oil than it was when Jimmy Carter was installing solar panels and a wood-burning stove in the White House.

The main reason has to do with what some call the Wal-Mart effect. For every extra dollar taken from drivers’ pockets at the pump in the form of higher prices in recent years, low-cost exporters from China and elsewhere have put roughly $1.50 back in the form of cheaper retail goods. Even at today’s near-record prices, U.S. households today spend less than 4% of their disposable income at the pump, vs. over 6% in 1980.

Current prices are also a reflection of a strong economy, not an oil embargo or war in the Middle East. Since a market-share war between Saudi Arabia and Venezuela flooded the market with oil and drove prices to below $11 a barrel in 1998, oil prices have risen nearly eight-fold. During that run, the global economy grew roughly 5% each year.

Strong growth in places like China helps take some of the edge off the oil-price blow for U.S. and European companies such as Detroit’s Big Three auto makers. Many emerging markets are hitting a “takeoff” stage, where per-capita income reaches a level that sparks serious auto demand, says Ellen Hughes-Cromwick, Ford Motor Co.’s chief economist. Growth in emerging markets is a “structural development” that is “less sensitive to oil-price changes,” she says.

“There’s a more relaxed attitude now,” said Daniel Yergin, a noted oil historian and chairman of Cambridge Energy Research Associates. At a recent event promoting Alan Greenspan’s new memoir, Mr. Yergin asked the former Fed chief on stage if $80 oil was a concern. “He basically shrugged and said, ‘Not so far,’” Mr. Yergin recalls.

Economists see global growth slowing but still chugging along at a relatively healthy 3% this year and next. High oil prices also mean more money for oil-producing nations such as Russia and Saudi Arabia to invest globally. “If resource owners are now getting a bigger piece of the pie to spend and invest, then $100 oil shouldn’t be a problem” in the absence of a U.S. recession, says independent energy economist Philip Verleger Jr. “And that investment is happening.”

Fundamental Shift

Such sanguine views, while they are far from universal, reflect a fundamental shift in economists’ understanding of how energy prices affect the economy.

Historically, oil prices have doubled or trebled in a matter of weeks because of sudden and sharp supply disruptions, such as those in 1980 following the Iranian revolution and the outbreak of the Iran-Iraq war. That prompted the Fed to raise interest rates sharply in an effort to head off a spiral of inflation.

Current Fed chairman Ben Bernanke has spent a lot of time trying to understand such shocks. In 1997, he analyzed the effects of sharp rise in prices during the oil shocks of 1973-75, 1980-1982 and 1990-91 in the Brookings Papers on Economic Activity. His surprising conclusion: The Fed’s cure for high oil prices was worse than the disease.

“The majority of the impact of an oil price shock on the real economy is attributable to the central bank’s response to the inflationary pressures engendered by the shock,” he wrote. Today, that view is fairly mainstream among central bankers.

Mr. Bernanke’s Fed recently responded to the subprime mortgage crisis by cutting benchmark interest rates for the first time in four years. By implication, the Fed was saying it was more worried about the fallout from credit-market gloom than about the risk of inflation. At a time of record energy prices, that’s a risky but educated bet.

Growing fuel efficiency could also blunt the blow of higher prices. James Barnes, a Union Pacific Corp. spokesman, says the railroad has bought more fuel-efficient locomotives and trained engineers to operate trains in ways that conserve fuel. “From a macro level, we would anticipate that rising oil costs will make us more competitive [with trucks] and potentially drive more business our way,” Mr. Barnes says.

Engine of Growth

In China, the engine of growth on which many are counting, other energy sources can make up for oil. China uses oil for only 21% of its energy needs, with most of the rest coming from coal. Unlike in the U.S., where imported oil goes to fill people’s gasoline tanks, China mainly uses oil in industrial settings, where coal may be an alternative. Greater coal use, however, would also exacerbate China’s already serious pollution problem and speed up emissions of gases that contribute to global warming.

Still, some fear the impact of $100-a-barrel oil would be too powerful for the U.S. to overcome. “If we aren’t already headed for a recession, it could push us in that direction,” says Bill Zollars, chairman and chief executive officer of YRC Worldwide Inc., a large trucking company based in Overland Park, Kan. “With a very fragile economy like we have now, this could be another burden for the consumer and the business community.”

Mr. Zollars says shipment volumes at YRC, which serves many retailers and manufacturers, have dropped to 2003 levels. “We are not seeing the kind of volume we would normally expect” ahead of the Christmas retail season, he adds.

Fall in Demand

Higher oil prices could hit the beleaguered auto and airline industries. Detroit is still digging out from the fall in demand for sport-utility vehicles caused by the climb in gasoline prices. Paul Ballew, General Motors Corp.’s top sales analyst, explained sluggish industry sales earlier this month by citing in part high fuel prices, which he called “effectively a tax on U.S. households.”

For now, most economists expect oil prices will stay high through next year. An unexpected hurricane in the Gulf or a sudden disruption to oil flows from a big producer like Iran or Mexico could push oil to $100, they say.

Demand is chugging along. The Paris-based International Energy Agency sees world oil demand in the fourth quarter rising by 2.8%, or 2.3 million barrels a day from a year ago, to nearly 88 million barrels a day.

Of course, those forecasts could go awry if the U.S. economy tanks and brings Europe and Japan along with it. Then demand would likely ease, and oil prices could fall, perhaps significantly. And then, the world would have something else to worry about.

–Daniel Machalaba, Shai Oster, Susan Carey and Mike Spector contributed to this article.

Write to Peter Fritsch at peter.fritsch@wsj.com and Kelly Evans at kelly.evans@wsj.com

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Jim Rogers Sees `Skyrocketing’ Prices for Commodities

Tuesday, September 25th, 2007

Jim Rogers Sees `Skyrocketing’ Prices for Commodities (Update3)
By Betty Liu and Eric Martin

Sept. 24 (Bloomberg) — The Federal Reserve’s interest rate cut was a mistake that will prompt “skyrocketing” agricultural prices worldwide, exacerbate a decline in the dollar and quicken inflation, investor Jim Rogers said.

The “clowns in Washington” have “signaled to the world they don’t care about the U.S. dollar,” Rogers said in an interview from Singapore. The Fed reduced its benchmark rate by half a percentage point to 4.75 percent last week.

The commodities rally, which Rogers correctly predicted in 1999, may last 15 more years, he said. Oil may reach $150 a barrel during that time, Rogers added. In 2005, he said the commodity bull market may last until 2022 because of a lack of investment during the past two decades.

Rogers, 64, co-founded the Quantum hedge fund with George Soros in the 1970s and traveled the world by motorcycle and car in the 1990s researching investment ideas for his books, which include “Adventure Capitalist” and “Hot Commodities.”

The dollar today fell to a record against the euro and weakened versus the yen on speculation U.S. growth is losing momentum, adding to pressure on the Fed to reduce interest rates again. The currency’s slide has boosted gold as investors seek an alternative investment, lifting prices to the highest since 1980.

Crude oil has surged 32 percent in the past year, and last week reached a record $83.90 a barrel in New York. Wheat set an all-time high of $9.1125 a bushel on Sept. 12 as world consumption is forecast to exceed production for the seventh time in eight years.

`Place to Be’

On July 2, Rogers said agricultural commodities were “the place to be,” and that investors should buy them over stocks and bonds. Today, he advised against buying wheat, which has become the most expensive ever relative to corn, soybeans and cotton.

“I wouldn’t buy it now,” Rogers said. “If you’re going to buy something, buy coffee or cotton or sugar. Wheat has been going straight up for about a year. I don’t like to jump on a moving bus.”

Prices will fall 30 percent to $6 a bushel within a year, said James Gutman at Goldman Sachs Group Inc. in London and Pierre Martin, manager of a $490 million commodity fund at DWS Investment GmbH. Chicago futures markets show a similar drop.

The Standard & Poor’s 500 Index today lost 8.02, or 0.5 percent, to 1,517.73 after the International Monetary Fund warned of “protracted” economic instability.

To contact the reporters on this story: Betty Liu in New York at bliu17@bloomberg.net ; Eric Martin in New York at emartin21@bloomberg.net .

Last Updated: September 24, 2007 16:19 EDT

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BNP, UBS, Pounded by Forecast, Are Proving Prescient (Update3)

Tuesday, September 25th, 2007

BNP, UBS, Pounded by Forecast, Are Proving Prescient (Update3)
By Gavin Finch and Bo Nielsen

Sept. 24 (Bloomberg) — The world’s three biggest currency traders advised investors at the start of the year to bet against the British pound when it traded at $1.9588. Instead, it climbed to a 26-year high of $2.0654 on July 24, a gain of 5.4 percent.

The bears at Frankfurt-based Deutsche Bank AG, UBS AG in Zurich and Citigroup Inc. of New York may yet be vindicated as the U.S. subprime mortgage contagion spreads around the globe.

Last week the pound fell to as low as $1.9881 after Britain bailed out mortgage bank Northern Rock Plc. The rescue raised concern that more lenders may seek emergency funding and prompt the Bank of England to cut interest rates, hurting the pound by reducing the relative attractiveness of U.K. debt investments.

“This is an important turning point for the pound,” said Jim McCormick, London-based global head of currency strategy at Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds. “The expectations around the economy and monetary policy on the back of what has happened to Northern Rock have shifted pretty significantly.”

Against the euro, the currency fell to a 17-month low of 70.053 pence last week. The Bank of England’s Sterling Effective Rate Index, measuring the pound against 43 countries that trade with Britain, is the lowest in a year. The pound traded at $2.0229 at 3:17 p.m. in London today.

`Turn for the Worse’

Deutsche Bank and UBS say the pound will weaken 6 percent over the next three quarters. Citigroup expects a decline of about 1.5 percent by year-end. Strategists at the firms predicted in December it would trade at $1.96 or lower this year.

Paris-based BNP Paribas SA, which said in June the currency would trade at $1.88 by year-end, is even more bearish, predicting it will fall closer to $1.547 next year, as suggested by the bank’s purchasing-power parity calculations. Lehman forecasts the pound will fall to $1.85 in 2008.

“The outlook for sterling took a turn for the worse after the Northern Rock crisis, which has undermined investor confidence in the housing market,” said Hans Guenter Redeker, head of currency strategy at BNP in London. “Sterling is highly correlated to the housing market.”

Record high delinquencies on mortgages to U.S. homeowners with poor credit have caused lenders around the world to push up borrowing costs, sending three-month dollar Libor to the highest since January 2001, and prompting the Federal Reserve to lower rates for the first time in four years last week.

In the U.K., soaring credit costs led Northern Rock, which relies on the capital markets for 73 percent of its funds, to seek emergency financing from the Bank of England.

Customer Lines

Customers of the Newcastle-based mortgage lender this month lined up at its branches to withdraw their savings, the first bank run in the U.K. since the 19th century, according to London- based Barclays Plc.

Northern Rock has plummeted 70 percent since Sept. 13 in London, while competitors Leicester-based Alliance and Leicester Plc and Bingley-based Bradford & Bingley Plc, which rely on financial markets for more than 50 percent of mortgage funding, have also declined.

Bank of England Governor Mervyn King on Sept. 20 defended his handling of the bailout. He told a parliamentary committee in London that U.K. and European Union laws hampered the central bank’s ability to prevent the worst banking crisis since 1973.

“We’ve seen confidence in King erode,” said David Watt, a senior currency strategist with Royal Bank of Canada in Toronto. “He hasn’t handled the crisis well. If there’s uncertainty about the decisions of the BOE, it erodes confidence in the pound.”

Watt said Royal Bank, which predicts the pound will trade at $2.03 in the first quarter of 2008, plans to cut its forecast next month.

`Most Sensitive’

A decline in the financial industry, which accounts for 10 percent of Britain’s gross domestic product, may slow the U.K.’s economic expansion. Growth may decelerate to 2.2 percent next year, the Confederation of British Industry said Sept. 20, cutting its prediction from 2.4 percent.

“The U.K. economy is one of the most sensitive to the ebb and flow of financial markets,” said Kamal Sharma, a London- based currency strategist at Bank of America Corp. in Charlotte, North Carolina. “Any downturn in the global financial sector is going to hit the U.K. disproportionately hard.”

The pound will fall to $1.91 by April, Sharma said. He cut his forecast for the currency from $1.95 on Sept. 17.

Consumer spending is holding up. Retail sales rose 0.6 percent last month, National Statistics said Sept. 20. Sales were expected to remain unchanged, the median of 31 estimates in a Bloomberg News survey showed. Money supply grew 13.5 percent, the most since May and a sign inflation may accelerate.

Rate Outlook

“There is still lots of evidence of a growing economy,” said Camilla Sutton, co-head of currency strategy at Scotia Capital Inc. in Toronto. The firm forecasts the pound will strengthen to 2.05 versus the dollar by the end of March.

The Bank of England’s benchmark rate, now at 5.75 percent after five rate increases since July 2006, is the highest of the Group of Seven most-industrialized nations. The U.S. Federal Reserve last week slashed its target for overnight lending between banks by half a percentage point to 4.75 percent.

Interest-rate futures show traders expect the U.K. central bank may follow the Fed in lowering borrowing costs next year. Two weeks ago they bet it would raise rates.

The yield on the March 2008 futures contract has fallen 43 basis points to 5.76 percent since Sept. 4. The contracts settle at the three-month London interbank offered rate for the pound, which has averaged about 15 basis points, or 0.15 percentage point, more than the central bank’s benchmark in the past decade. Consumer prices rose less than the government’s 2 percent target in August for a second month.

Barclays Cuts

“The likelihood of the Bank of England cutting rates has clearly increased a great deal,” said Paul Robinson, a senior sterling strategist in London at Barclays Capital in London and a former Bank of England economist. “We previously thought the BOE would raise rates.” Barclays expects the pound to decline to $1.92 in a year, compared with its prior forecast of $1.96.

Investors are covering wrong-way bets on the pound after Northern Rock, the third-largest U.K. mortgage lender by gross loans, sought emergency funds from the central bank on Sept. 14. Risk-reversal rates, the price traders pay to buy options that protect against losses in the event of a drop in the pound, were minus 0.6 percent on Sept. 19, the biggest premium since at least October 2003, data compiled by Bloomberg show.

And while retail sales rose last month, housing prices fell. U.K. home values declined 2.6 percent this month from August, according to Rightmove Plc, Britain’s biggest real-estate Web site. In London, prices tumbled 2.5 percent to 384,439 pounds ($774,000), the biggest drop since 2004.

“The U.K. economy is housing-dominated,” said Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California. “They have had their own housing bubble, and the central bank will have to lower interest rates to salvage that situation. I’ve sold my pound sterling based on that hazardous situation in the U.K.”

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net ; Bo Nielsen in New York at bnielsen4@bloomberg.net

Last Updated: September 24, 2007 10:17 EDT

http://www.bloomberg.com/apps/news?pid=20601109&sid=aF9SV9pGe9Z8&refer=news

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Greenspan Slams Ratings Agencies

Tuesday, September 25th, 2007

http://blogs.wsj.com/economics/2007/09/23/greenspan-slams-ratings-agencies/

September 23, 2007, 12:59 pm

Greenspan Slams Ratings Agencies

In an interview with Sunday’s Frankfurter Allgemeine Zeitung, one of Germany’s most prominent newspapers, former Federal Reserve Chairman Alan Greenspan sharply criticized ratings agencies for their role in the current credit crisis. “People believed they knew what they were doing,” Mr. Greenspan says in today’s FAZ. “And they don’t.”

Still, he doesn’t think it’s necessary to strengthen rating-agency regulation. Essentially, they’re “already regulated,” he says, because investors’ loss of trust means the agencies are likely to lose business. “There’s no point regulating this. The horse is out of the barn, as we like to say.” Greenspan also said he believes that the volume of structured-finance products will decrease. “What kept them in place is a belief on the part of those who invested in that, that they were properly priced. Now everyone knows that they weren’t. And they know that they can’t really be properly priced,” said Greenspan.

Fidel Castro with a copy of Greenspan’s new book, “The Age of Turbulence.” (AP photo)

In the article, Greenspan also refutes critics who say the Fed kept rates too low for too long after Sept 11 and therefore contributed to the U.S. real-estate bubble. Rather, he holds the general, worldwide decline in long-term interest rates — which he says the Fed had no tools to combat — responsible: “The central bank in this country is no match for bull markets that have developed in the last generation.”

Greenspan predicts there’s likely to be a further sharp fall in U.S. house prices, which should dampen consumption: “As a consequence, that will affect consumer spending, because … a substantial part of consumer spending does not come directly out of income, but out of assets, finance by debt.”

Finally, Greenspan said he’s against hedge-fund regulation. “Hedge funds are a very important plus,” because they increase the market’s flexibility and resilience, Greenspan told the FAZ. While he reckons there may be more hedge-fund collapses, he doesn’t see that as a threat to the financial system and cites Amaranth’s limited impact as an example. Plus, he says, it’s practically impossible to regulate hedge funds anyway. “One of the problems with hedge funds is that they are changing so rapidly,” he says. “If you have the balance sheet that closed business last night, by 11 a.m. this morning, that won’t tell you very much about what they’re doing.”

Meanwhile, on NBC’s “Meet the Press,” Greenspan put the odds at less than half that the U.S. is headed for a recession. “We’re heading towards a slowdown. Whether that actually leads to a recession is dependent on things we can’t forecast at this moment. My own guess is the odds are less than 50-50 that we’re heading to a recession,” Greenspan told host Tim Russert. Read the transcript
–Joellen Perry

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At home in rural Kent, Moulton is plotting more mischief.