Greenspan hands over banking reins

Alan Greenspan

When Alan Greenspan walks out the door of the US Federal Reserve today after 18 years as its leader, he will already have secured his place in economic history.

But the former Fed chief, 79, isn't about to fade away - tomorrow he'll likely be back at work at a new location with plans for a book, a consulting service and speaking engagements at least on his mind.

Greenspan, arguably the most famous chairman in the history of the US central bank, is treated in some circles as an oracle for his seeming mastery of the business cycle.

He has his critics, though.

"There are some of us who believe he aided and abetted some asset bubbles," said Paul Kasriel, chief economist of Northern Trust in Chicago, alluding to the 1990s sharemarket boom and the surge in housing prices over the past five years.

Greenspan counters these accusations by saying interest rates are too blunt a tool to safely fix asset bubbles. The former Fed chairman has also faced fire for stepping into areas that had nothing to do with monetary policy, offering support for Bush Administration tax cuts in 2001 and private retirement accounts in the Government system.

Moves like those outraged Democrats and fuelled the sort of scorn that led Senate Democratic leader Harry Reid to last year label Greenspan "one of the biggest political hacks we have in Washington".

Still, the Fed chief stepped down with generally high marks from the public. A Gallup poll released yesterday showed 65 per cent of Americans approved of his performance.

The survey showed the wealthy were more favourably disposed than the poor, with about half of adults in households earning less than US$30,000 ($44,500) a year giving him a thumbs up, versus 82 per cent of families earning US$75,000-plus.

The public has seen more fat years than lean under Greenspan, whose tenure spanned the 1990s economic boom. During the record 10-year expansion, he carried an aura on Wall Street that made many feel he might keep growth running indefinitely.

That bumper growth period of the 1990s was fuelled in part by a huge stocks rally that Greenspan famously labelled "irrational exuberance" in 1996.

The bursting of the high-tech bubble in 2000 and a subsequent mild recession tested investors' faith, but the world rushed to praise him in his waning months on the job.

Saluted at a White House dinner last week, handed awards including the Defence Department's Medal for Distinguished Public Service and lauded by colleagues, Greenspan left without talking to reporters.

His unobtrusive exit seemed designed to avoid upstaging successor Ben Bernanke, but it's also in keeping with a record of allowing his accomplishments to speak for themselves.

They include his calm response to such economic turbulence as the sharemarket crash of October 1987 - a scant two months after he took over at the Fed - the 1997-98 Asian and Russian financial contagion, and the economic shockwaves from the September 11, 2001, attacks on the United States.

The former jazz musician took over the Fed in 1987 from Paul Volcker, himself credited with quenching the raging inflation of the late 1970s and early 1980s. Under Greenspan, the Fed ratcheted inflation down further.

Greenspan leaves a mixed economic picture behind him. The pace of growth slowed at the end of 2005, but many economists see it picking up smartly this quarter. This is playing out amid lively concerns over potential inflation as energy prices hum along above US$60 a barrel - levels unthought of a few years ago.

"We really don't want to give Greenspan a grade yet. You want to wait a year or two to see whether the seeds turn to weeds," Kasriel said.

 

Spanning the years

* Born in New York City in 1926, Alan Greenspan, 79, was the only child of Rose and Herbert Greenspan. His parents divorced when he was young, and he was raised in a small apartment in the Washington Heights section of New York with his mother and grandparents.

* His first love was baseball, a passion that gave way to music in his teens. He spent two years at New York's Juilliard School studying the clarinet.

* Before studying economics at New York University, he toured briefly with a swing band as a saxophone player but he turned to numbers when he realised that was where his skill - and his future - lay.

- REUTERS