Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom" and the resulting market turmoil...

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Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are “nowhere near the bottom” and the resulting market turmoil isn’t showing signs of abating.

While the odds of a recession are 50-50, achieving stable markets will “take awhile,” Greenspan said Thursday in a CNBC interview.

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After his comments, benchmark stock indexes declined further.

The economy grew at a 1.9 percent annualized rate in the second quarter after expanding 0.9 percent in the first quarter, the Commerce Department said in Washington, D.C. Gross domestic product (GDP) was revised to show a contraction in the final three months of 2007.

More Americans filed claims for unemployment insurance last week than at any time in more than five years, the Labor Department said.

Fed policymakers have cut the benchmark rate to 2 percent from 5.25 percent since September, halting the reductions in June amid rising concern about inflation.

“Major accident”

Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, are a “major accident waiting to happen,” Greenspan said.

“The solution” is the “nationalization” of the companies, a restructuring involving an infusion of taxpayer money and eventual sale back to the market as “five or 10 separate entities,” he said.

Fannie Mae dropped 71 cents, or 5.8 percent, to $11.50 in New York Stock Exchange composite trading. Freddie Mac fell 56 cents, or 6.4 percent, to $8.17.

“It’s important that we focus on stabilizing the financial system,” Greenspan said.

Growth vs. rising prices

Policymakers also need to reconcile slowing economic growth with rising prices, he said.

The U.S. faces “a very substantial change in the balance between growth and inflation.”

The Fed had to open up lending to securities firms to curb turmoil in financial markets, he said.

“You have to do the backstop because once you get to that point your particular choices are very limited.”

Still, Greenspan said he was “uncomfortable” with aspects of the Bear Stearns rescue. “That is a fiscal policy operation, essentially something which should be set up in the Treasury Department.”