New Jersey Gov Corzine: We're in a recession

NEW YORK (Reuters) - New Jersey Governor Jon Corzine, who once led Wall Street giant Goldman Sachs, on Wednesday told Reuters the U.S. economy already is in a recession that could persist, and that federal authorities have only taken the first steps toward turning things around.

"I certainly concur with the view that we are in a recession," Corzine said in an exclusive interview at Reuters' U.S. headquarters in New York. "We have pretty strong indications that we have seen a major, major downshift in the economy. I think we'll find we started in the last quarter of last year."

The New Jersey Democrat became governor of the 11th largest state last year after a short stint as U.S. senator and a 24-year career at Goldman Sachs. Corzine rose through the ranks as a bond trader to become chairman and CEO of what is now the world's largest securities firm, and he played a key role in its 1999 conversion from a partnership to a public company.

Corzine spoke the same day a quarterly survey of corporate finance chiefs found 54 percent believed recession has already begun and would last longer than other recent downturns.

The U.S. central bank, eager to stave off an economic contraction, has cut benchmark rates five times by a combined 2.25 percentage points since September to 3.0 percent.

And on Tuesday, the U.S. Federal Reserve said it would lend $200 billion of Treasuries to primary dealers and accept mortgages as collateral to ease liquidity pressures on banks. These efforts, Corzine said, are only a start.

While "$200 billion is a very large number, it is relatively insignificant in the overall scheme: trillions of dollars in the mortgage market," he said. "It's a really good start, but it's probably not going to change the ocean of credit that's extended in the mortgage arena."

Corzine suggested the Fed would cut benchmark rates again next week, lowering yields for low risk assets and putting pressure on investors to buy other assets. He also predicted that the Fed may intervene again to support the banking system, though it tends to take small steps.

"They have the right formula. Whether they have the right amounts, I think, remains to be seen," he said.

Corzine said it will be hard to predict how long a recession would last, noting falling house prices, high energy costs and a weak dollar have hurt consumers.

"This is going to take a while to work out," he said.

Moreover, with the economy slowing despite interest rates that have been cut to 3 percent, there's growing concern of "stagflation": when prices rise and the economy shrinks. Corzine said the risk of this happening is "fairly significant."

Among the steps lawmakers can take to bolster the economy, he said, are moratoriums for mortgage debt payments, supported by funds from the federal government. Helping overextended homeowners, though it bails out some poor decisions, would help the broader economy in the end, he said.

Banks could set up pools of loans that are distressed or in foreclosure, he said, arguing it was better to get some value than zero value and a glut of vacant homes.

"If you were in the private sector, an auto company for example, banks would negotiate a different deal to protect some of the equity, the value they held as collateral. I think we need a broader program to make that happen in this country."

(Reporting by Joseph A. Giannone and Stella Dawson, Editing by Chizu Nomiyama)