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Under the gun
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WHEN George W Bush was asked during a campaign debate last October how he would handle a stock market crash or other major financial crisis, his answer was straightforward: first call Alan Greenspan.
The chairman of the US Federal Reserve (Fed) still has legions of admirers who cite a steady hand under four presidents at the helm of the nation's central bank. He has been hailed as the maestro of one of the nation's longest economic expansions and often characterized as the second-most powerful leader in the United States.
But now, more than any time before in his 14 years at the Fed, Greenspan has been coming under criticism. His detractors in the financial community and on Capitol Hill suggest he was late in recognizing the storm clouds gathering over the economy — and then acted too slowly.
American investors hoping he would play the role of stock market savior were generally disappointed on Tuesday when the Fed lowered key short-term rates half a percentage point, not the three-quarters they desired to help prop up a faltering market. Both the Dow and Nasdaq fell sharply after the announcement.
With the falling stock market threatening to bring on recession, the stakes could not be higher for Greenspan, whose reputation as a brilliant financial tactician is on the line.
The size of the interest rate cut may dictate whether the 10-year economic expansion continues or the US economy falters.
“If this economy tanks, he's going to get a lot of the blame for it. And he should," said economist Lawrence Chimerine. “I've known Alan a long time. But, let's face it, he's made many mistakes. His forecasting record leaves a lot to be desired."
While the Fed's mission is not to bail out financial markets, roughly half of all US families own stock, much of it in retirement plans. When they feel financial pain, there's an impact.
“If ever anyone was a day late and a dollar short, it was Alan Greenspan today," said Senator Byron Dorgan, an early Greenspan critic.
A bit more gentle, former Fed Governor Lyle Gramley said: “There really isn't anything standing in the way of continued aggressive moves by the Fed."
The main case against Greenspan is this: Critics say he raised interest rates last year when he should have been lowering them, continuing the tight-money stance through November.
By the time he started slashing rates in January, the economy was already tottering on the brink of a recession and the tech-stock bubble had burst. Now, US policymakers face an ugly combination of a depressed stock market and an economy on the edge of a recession.
Since taking office, Bush has wooed Greenspan — and the 75-year-old Fed chairman, always politically savvy, has returned the overtures, including signalling support for Bush's centrepiece US$1.6 trillion tax cut.
Bush named a longtime Greenspan friend, Paul O'Neill, as treasury secretary and bowed to Greenspan's wishes and renominated ally Roger W Ferguson Jr for a full 14-year Fed term, helping to assure Greenspan's continued domination of the board.
Senator Charles Grassley, chairman of the Senate Finance Committee, joined a chorus of lawmakers expressing disappointment with the size of the Fed move on Tuesday. He said the state of the economy and lack of inflation would have permitted “a lowering of interest rates to a greater extent".
But others indicated they still had faith in Greenspan's touch. “If it needs to be lowered again, I feel comfortable that he will," said Senator Kay Bailey Hutchison.
Born on March 6, 1926, in New York City, Greenspan knows a recession when he sees one. The cautious chief of the Fed was a child through the Depression, became President Gerald Ford's top economic advisor during the economic woes of the mid-70s, and ascended to his current post only months before the stock market crash of 1987. It stands to reason that Greenspan has been obsessed with balancing the US economy between boom and bust.
The son of a stockbroker and retail worker, Greenspan displayed a gift for figures at a young age, often impressing his mother's cronies by solving mathematical puzzles in his head.
After high school, Greenspan studied music at the Juilliard School and accepted his first real job as a clarinet and saxophone player in a swing band. Notes ceded to numbers when, at 19, he enrolled as an economics student at New York University.
In the early 50s, Greenspan, short on cash, dropped out of a doctoral programme at Columbia University to become a professional economist. The university later conferred his PhD in 1977 without a dissertation.
With bond trader William Townsend he founded an economic consulting firm, New York's Townsend-Greenspan & Co Inc, which prospered until 1987 when Greenspan dissolved it to pursue his career at the Fed.
Greenspan, a soft-spoken Republican, first tasted public life as director of policy research for Richard Nixon's 1968 presidential campaign. President Ford appointed Greenspan chairman of his Council of Economic Advisors. He took a breather from government during the Carter Administration and returned to Washington in 1987, when President Ronald Reagan nominated him as Fed chairman.
Greenspan has stayed at that post through three presidencies and now on the fourth — testimony to his economic and political acumen.
As Fed chief, he controls US monetary policy by influencing short-term interest rates and, in turn, the cost of credit to US companies and consumers. Because almost everything he says can affect the lives of shoppers and investors alike, Greenspan selects his words and actions with great discretion.
When not pondering policy, Greenspan spends time with his second wife, NBC journalist Andrea Mitchell, whom he married in April 1997. He enjoys classical music, tennis, the writings of Ayn Rand, and reportedly writes all his speeches in the bathtub.(SD-Agencies)
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