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 Fed chairman 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 — even the world.
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.
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
NASDQ fell sharply after the announcement.
"If this economy tanks, he's going to get a lot of the blame
for it. And he should," said economist Lawrence Chimerine,
president of Radnor Consulting of Philadelphia. "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 American families own stock, much of it in
401(k)-style 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 Sen. Byron Dorgan, D-N.D., 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, U.S. policy-makers face an ugly
combination of a depressed stock market and an economy on the edge
of a recession.
Greenspan, 75, served as President Ford's top economic adviser
in the 1970s and was first appointed as Fed chairman by President
Reagan in 1987. A Republican, he was reappointed by both Bush's
father and Bill Clinton.
During the first debate with Vice President Al Gore in Boston on
Oct. 3, the younger Bush was asked how he would handle "a stock
market tumble" or "a failure of a major financial institution."
"What I would do, first and foremost, is I would get in touch
with the Federal Reserve chairman, Alan Greenspan, to find out all
the facts and the circumstances," Bush responded.
Since taking office, Bush has wooed Greenspan — and the Fed
chairman, always politically savvy, has returned the overtures,
including signaling support for Bush's centerpiece $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.
Sen. Charles Grassley, R-Iowa, 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 Sen. Kay Bailey Hutchison, R-Texas.
