In an interview on CNBC, Former Federal Chairman Alan Greenspan warned that if the Federal Reserve is given a role to oversee the financial system it could undermine its credibility.

Greenspan, in the interview, said the American economy is holding up rather well. He credited the resilience of non-financial firms' strong balance sheets to be the reason for the U.S. economy's performance.

Greenspan said the US is facing a "once in a century crisis." He warned that the U.S. teeters on the brink of recession. "There is still a 50-50 chance of recession," said Greenspan. He added that the current data was still not pointing to a recession but that, more than likely, it would go that way.

When asked about the GSE bailout, Greenspan commented that the Treasury secretary Paulson had no choice but to support Fannie and Freddie. He warned against the Federal Reserve becoming involved in fiscal policy. Fannie and Freddie may have to end up being nationalized or broken up and sold off, said Greenspan. "They are a major accident waiting to happen," he warned.

Commenting on the current high oil prices, Greenspan said the oil market has long term structural problems. He added that he had no comment concerning a second fiscal stimulus package.

Greenspan told CNBC that the central bank's top priority should be to stabilize markets and that the current budget deficit was a real concern.

By Steve Stecyk and edited by Sarah Sussman