Former Fed chief Alan Greenspan thinks the United States will have a recession, though he doesn’t expect it to be “severe.” In an interview with the Financial Times, Greenspan says he believes there is a better than 50% chance that the American economy will suffer a contraction this year. Greenspan sees a “tug of war” between the loss-soaked financial sector and strong profit gains among nonfinancial companies, and concedes he can’t predict how that will play out. “No one knows how this tug of war will end – specifically, whether the financial crisis will end before it drags down the real economy,” Greenspan tells the FT.

Greenspan says recent economic data suggest the economy is stabilizing, but it’s too early to say whether the worst of the financial crisis is over, as he expects further declines in house prices. In the meantime, he is keeping an eye on rising household savings. While rising savings are surely a good thing in the long run, the danger now is they could further depress consumer spending - and deepen any recession that comes to pass.

Maybe Alan Greenspan hasn’t been totally clueless about the housing bubble after all. Since coming on last year as an adviser, Greenspan has made bond investor Pimco “billions of dollars,” Pimco co-investment chief Bill Gross said. Gross, speaking at a conference in Los Angeles, attributes the gains to Greenspan’s “brilliance in terms of forecasting the potential for exactly what happened” in the past year’s global credit crunch, Bloomberg reports.

Though Pimco has performed well recently, Greenspan’s reputation for brilliant foresight has been eroding since house prices stopped rising back in 2006. Since then, Greenspan has been castigated for failing to crack down on aggressive lending practices while he was chairman of the Federal Reserve, and for keeping interest rates too low earlier this decade as house prices took off. He has responded recently to the effect that the U.S. wasn’t alone in having a housing bubble and that there’s no evidence central bankers would succeed in popping any asset bubbles anyway.

“Regulators, to be effective, have to be forward-looking to anticipate the next financial malfunction,” he wrote in a March opinion piece in the Financial Times. “This has not proved feasible. Regulators confronting real-time uncertainty have rarely, if ever, been able to achieve the level of future clarity required to act pre-emptively.”

In the same piece, Greenspan himself admitted that a fair amount of future clarity had continued to elude him on how the housing bust would play out. “I have been surprised by the fierceness of investors in retrenching from risk since August,” he wrote in March.  But not so surprised that he couldn’t offer a few helpful pointers to a client.

Former Fed chief Alan Greenspan is back on the warpath. A day after he raised eyebrows by insisting in the Financial Times that central bankers were powerless to prevent the housing bubble, Greenspan tells The Wall Street Journal that he is being unfairly singled out for criticism for policies he believes have yet to be discredited. “I do take it seriously if my peers think I have misstated the facts,” he tells the Journal. “But where’s the evidence? Too many people make accusations by assertion. I think it’s improper.”

Fair or not, the criticism of Greenspan centers on the notions that he was too quick to reduce interest rates and that he was uncritically supportive of so-called financial innovations such as derivatives and adjustable-rate mortgages. Greenspan’s 2004 speech extolling the virtues of adjustable-rate mortgages looks particularly imprudent now, in the light of rising delinquencies on those loans. Greenspan, however, prefers to focus on his efforts a week later to explain that he thought plain old 30-year fixed rate mortgages were okay too. The Journal’s Greg Ip quotes Greenspan saying he finds it “profoundly disturbing” that everyone remembers the speech and not the explanatory comments.

Of course, it’s just that sort of posturing that drives Greenspan’s many critics to distraction. Greenspan’s comments in the FT prompted a point-by-point rebuttal from Yves Smith at Naked Capitalism, one she concludes by comparing Greenspan unfavorably with the late President Richard Nixon. “When Richard Nixon tried to rehabilitate his reputation, he didn’t dispute the horrific errors of judgment he made while in office,” she writes. “He instead made useful, substantive intellectual contributions on other fronts. But Greenspan is an ideologue and intellectually bankrupt, so this option may not be open to him.”

A day after French bank blamed a $7.2 billion loss on the rogue actions of one 31-year-old trader, the bank’s explanation was still raising some eyebrows. Even as badly as risk management has gone lately for big financial institutions, the claim that the dismissed trader - identified as Jerome Kevriel - managed to lose that much money making plain vanilla trades all by himself struck some readers as far-fetched.

“It is simply not believable that one person, sitting on a trading desk, rang the bell for $7.2 billion trading futures,” wrote a poster on this web site. “It seems impossible to believe this could have been accomplished without a massive internal conspiracy, or the true details of the losses have yet to be released.”

Meanwhile, others are wondering whether SocGen’s realization that it was sitting on billions of dollars in bad trades led to the sharp decline in European stock markets Monday. To take this thesis a step further, it was Kevriel’s freelancing that prompted Fed chief Ben Bernanke to slash interest rates Tuesday morning. That line of thinking got Jeff Matthews to musing about what might happen the next time Bernanke learns that a trader is on  the hook for some losses. “In order to be prepared for that eventuality,” he writes, “we here at NotMakingThisUp are happy to provide a handy set of headlines designed to make it easier for newspaper editors and fellow bloggers to respond to whatever move the Fed makes next.” As an added bonus, almost half of the handy dandy headlines refer to Alan Greenspan - the true villain in this and all other financial stories of the age.

Alan Greenspan keeps on cashing in. The former Fed chief is joining hedge fund Paulson & Co. as an adviser. The move, which comes on the same day that Merrill Lynch (MER) and Citi (C) raise some $21 billion in new capital to offset losses tied to the collapse of the housing bubble, puts Greenspan on the advisory board of the firm that has been among the biggest winners in betting against subprime mortgage-related securities. Greenspan, who has also been busy promoting his book, already advises bond shop Pimco and Germany’s Deutsche Bank, The Wall Street Journal points out.

At Naked Capitalism, Yves Smith is not impressed, comparing Greenspan - who is blamed by some for allowing the credit bubble to inflate through unusually low interest rates - to the man who brought you Watergate. Unfavorably, to boot. “It’s one thing for Greenspan to sell books and give speeches to try to salvage his reputation,” Smith writes. “Nixon did that too, with more success and less profit. It is quite another for him to benefit in a far more direct fashion from the devastation he created, by hooking up with the fund that scored the biggest kill from the worst aspects of the negative real interest rates that Greenspan put into effect.”

Unsurprisingly, Paulson & Co. founder John Paulson believes the Greenspan-bashing is overdone. “It’s easy to look back and do Monday-morning quarterbacking,” he tells the Journal. But Greenspan’s comments in an interview with the Journal won’t quiet those who view him as an apologist for the fast-mortgage crowd. His 2004 remarks in support of adjustable-rate mortgages, the newfangled loans that helped to fuel the runup of housing prices earlier this decade and now threaten a rash of foreclosures, still wrankle in some quarters. Four years later, even the Maestro is having second thoughts. “It turns out … that housing and housing prices are a critical factor in the determination of market values,” Greenspan says now. Who knew.