by Calculated Risk on 11/14/2006 08:55:00 PM

Liz Sonders, Chief Investment Strategist, Charles Schwab & Co. spoke with Alan Greenspan last week: The Maestro: A Conversation With Alan Greenspan

I asked ... about the state of the U.S. economy, to which Greenspan replied, "Not bad." He predicted a continued weakening into early next year, but said he's confident "the worst is behind us" since profit margins are high and capital orders are potent. "We have been in a slowing period, but it's temporary," he said. "The global economy is in extraordinarily good shape."

And on housing:

Although it's "too soon to say" if we're close to the bottom of the housing bust, Greenspan doesn't predict a rapid decline. I did get the sense that he was back-pedaling a bit from his well-quoted view recently that housing may have hit bottom. In fact, I reminded him that his "irrational exuberance" comment in 1996 came over three years prior to the market's ultimate top in 2000. In his well-crafted reply, he suggested, "This is not the bottom, but the worst is behind us." My skepticism about a muted impact of housing on the broad economy is well-documented, so I wasn't fully in agreement when he went on to say that housing market activity is likely no longer to be a drag on overall economic growth as unsold inventories clear out and stabilize against sales levels.

And on nontraditional mortgages:

I followed up by asking about the rash of non-traditional mortgages that characterized this housing boom/bust. He replied that those "flaky" exotic mortgages, which allowed consumers to purchase homes more expensive than they could afford, will be financially devastating for those families holding them, but will have little impact on the macro economy. Again, I hope he's right, but I have my doubts.