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Greenspan reassures in time of turmoil

It has been a common line on Wall Street and in Washington: Alan Greenspan, the chairman of the Federal Reserve, should have gotten out while on top last year, when the economy was still booming and his legacy as the embodiment of prosperity was secure.

Good thing he didn't.

Peering into the economic and financial chasms that are byproducts of the attacks on the World Trade Center and the Pentagon, it is clear that markets are in for a rough ride and that policy-makers will need skill and luck to avert a global recession.

It is also clear that many of those policy makers lack authority or credibility.

In Japan, the government has proved utterly ineffectual in coping with what amounts to a decade-long recession, and the performance of the quasi-independent Bank of Japan has been, if anything, worse.

Consumed with establishing its inflation-fighting credibility as Europe prepares to start its common currency, the new European Central Bank appears blind to the growing economic risks among its member countries, and has stubbornly resisted aggressive monetary easing this year.

And in the US, the Bush administration's team is green.

Treasury Secretary Paul O'Neill, a former chief executive of Alcoa, has never established himself with the financial markets. His blunt, unscripted style has won him plaudits in some quarters, but it has also gotten him into consistent trouble. Early in his tenure, he unsettled markets by deviating from well-established language used by the government to keep the dollar strong. He focused on issues, like workplace safety within the Trea-sury Department, that seemed far removed from the pressing matters of the day. This month, he offered economic forecasts lower than the administration's official projections.

As for President Bush, he has never seemed comfortable with or particularly engaged in the mechanics or theory of finance and economics. Anyway, Bush has other things on his mind. That leaves Greenspan.

The Fed chairman's reputation has taken a bit of a beating this year as the economy has decelerated and the stock market gains of recent years have turned to losses. He has been blamed for raising interest rates too much last year, and for not cutting them fast enough this year. He has been criticized for subscribing to and promoting the new-economy paradigm in the face of evidence that the boom of the late 1990s was nothing more than a bubble. But he still has a breadth of experience and a reserve of credibility that no one else in the world can match when it comes to an economic crisis.

"I don't think he on his own can save us from recession if one is coming," said Janet L. Yellen, a former Fed governor who also was chairwoman of the Council of Economic Advisers in the Clinton White House. "But I think it is very reassuring to have someone at the helm as experienced and respected as he is."

Greenspan has not been seen publicly since the terrorist attacks. After being hustled home from Switzerland on an Air Force jet, he holed up in his Fed office. He has no doubt spent the time delving into the condition of the markets, taking soundings from business executives and consulting with his counterparts from around the world. It is the kind of challenge that Greenspan has spent a career preparing for.

"We're very fortunate that he decided not to quit while he was ahead," Yellen said. "This is probably more important to him than whether he went out at the peak."
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