Continuing in a series of posts on an issue we’ve been following the past few days, Alan Greenspan – the former Chairman of the Federal Reserve – said today that the recent woes among sub-prime lending companies was “not a small issue.” He also pointed out that this might not even be the biggest story:

Greenspan expressed worries that will the sub-prime bubble could have impacts in other sectors and real economic effects. But he didn’t stop there. He also said that the rapid decline in housing prices might even be a greater worry. Greenspan also put forward his belief that much of the gains in consumer spending in recent years could be traced to gains, including gains that hadn’t been realized yet, in housing values. Considering 2/3rds of the American economy is dependent on consumer spending, this has the potential to be quite an issue.

The larger question this raises though is: is there a larger connection to all these events and are we looking at a possible disaster for the American middle class? Because so many middle class Americans have most of the wealth in the house, and the combined fall of housing prices, an increasing number of Americans not beings able to make their mortgages, companies going belly up in the sub-prime lending markets with its requisite aftershocks, and the impact on consumer spending this all has – it makes you wonder, is middle class America resting its economic future on housing values that are headed south?

http://money.cnn.com/2007/03/15/news/economy/greenspan_subprime.reut/index.htm?postversion=2007031517