Greenspan Will Join
Paulson as an Adviser

Former Federal Reserve Chairman Alan Greenspan, whom some blame for fueling a housing bubble, is signing on as an adviser to hedge-fund firm Paulson & Co., which has profited handsomely from the collapse of that bubble.

Mr. Greenspan will become a member of the New York-based fund manager's advisory board, the firm is to announce today.

It is the third consulting contract Mr. Greenspan, 81 years old, has signed since leaving the Fed after 18 years as chairman in January 2006 and establishing his own company, Greenspan Associates. He reached similar agreements with Pacific Investment Management Co., which manages more than $700 billion mostly in fixed-income assets, and Germany's Deutsche Bank AG last year. His memoir, "The Age of Turbulence," was released in September and remains on the New York Times best-seller list.

Mr. Greenspan has said he would only consult with one client in each industry, and thus Paulson, with assets of $28 billion, is the only hedge fund he will work for directly. Still, all three of his clients have profited from a bearish view on housing and mortgages.

"What they all have in common is an interest in economic fluctuations and global economic forces which are dynamic," Mr. Greenspan said in an interview. "It turns out... that housing and housing prices are a critical factor in the determination of market values."

Housing and mortgage markets have been of intense personal interest to Mr. Greenspan since the 1960s, and he devoted hours of personal and Fed staff research time to the subject. That could come in handy for Paulson. Last year, one of its credit hedge funds rose by about 590% thanks to bets that the housing market would weaken and that mortgages given to borrowers with sketchy credit would drop in value.

John Paulson, who founded the firm in 1994, lately has been making investments that he hopes will pay off if other kinds of consumer debt lose value, financial companies run into more problems and the overall economy slumps. In a late October presentation to investors, "The Worst Is Yet To Come," Mr. Paulson said the hedge fund anticipates lower housing prices, a decline in consumer spending, rising credit costs, and a slowdown in the economy so deep that lower interest rates might not help very much. His firm has been reducing its exposure to stock markets.

Some critics say Mr. Greenspan helped fuel the housing bubble by keeping interest rates at 1% from 2003 to 2004, and then raising them too slowly. Mr. Greenspan has argued that low rates were necessary to eliminate the risk of dangerous deflation, or generally falling prices. He has also said global forces that held down long-term interest rates world-wide were the primary reason housing prices soared around the world. Yesterday, he said many of the criticisms of his record are simply wrong in diagnosing what caused the problems in housing and mortgage markets.

Mr. Paulson defended Mr. Greenspan's record, saying he isn't to blame for the housing crisis that the hedge-fund investor has profited from. "It's easy to look back and do Monday-morning quarterbacking," Mr. Paulson said. "The decisions he made at the time were right."

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