Greenspan, 'Rock Star of Economics' Bows Out Tuesday

Jan. 23, 2006 — -- Many of nature's finest trees have fallen in recent months to fuel the flood of articles on the retiring chairman of the Federal Reserve, the venerable Alan Greenspan. Some call him Maestro, the title of Bob Woodward's biography, a title usually associated with music.

Greenspan, a former professional saxophone and clarinet player, probably likes the moniker. Go to his home on a winter evening, and he'll play classical and opera recordings for you. But don't be misled. As a young man, Greenspan's specialty was jazz. One of the bands he played in was led by a man known as Hot Lips. Greenspan has led a more varied life than most of us realize.

But he knew early on he would not be a great jazz artist, a realization now applauded in financial markets all over the world.

As he leaves public service this week, the praise for his 18 and a half years at the Fed is as loud as the music he listens to at near-full volume. First though, let's hear from the naysayers.

Writing in Forbes Asia, James Grant maintains the Greenspan legacy " … includes a crazy housing market, extended consumers and a burst stock bubble." Critics say Greenspan gave bad advice in 2004 when he seemed to urge home buyers to get adjustable-rate mortgages. Since then, those rates have risen.

But what Greenspan actually said was that buyers could have saved money in the past if they had chosen adjustable rates instead of fixed rates. He did not predict what would happen in the future. His critics are not so reticent. They predict that, partly because of his policies, the housing market will implode, inflation will rise and the economy will fall into a slump.

But the critics can only write a minority report. Most economic and financial analysts believe Greenspan turns over a healthy economy to his successor, Ben Bernanke, who calmed the stock market by promising to follow the policies of the Greenspan years. Vice President Dick Cheney assured Fox News viewers that should Bernanke ever need advice: "Chairman Greenspan is only a phone call away."

Greenspan himself continues to warn about budget deficits. He has generally had a good relationship with President Bush, but Greenspan clearly worries about the deficits that have grown during Bush's presidency. Still, Greenspan backed the Bush tax cuts, which critics blamed for much of the deficits. Greenspan regrets he did not persuade Congress and Bush to cut spending.

The 79-year-old Republican has pleased most of the presidents he has worked with, otherwise they would not have continued to reappoint him for nearly two decades. With one possible exception, they have liked Greenspan's attempts to keep interest rates low and to raise them only when he was convinced that inflation was a clear and present danger.

Greenspan has, so far as we know, resisted political pressure to cut rates even to help a president he liked. Greenspan was very fond of President George H.W. Bush. But when Bush ran for re-election, Greenspan refused to do what Bush's aides wanted: lower interest rates and boost the economy. Bush lost to Democrat Bill Clinton. Bush never blamed Greenspan, at least not in public.

Greenspan's relationship with Clinton surprised everyone, including the two of them. As Clinton prepared to take office, they met and the president-elect was impressed. Clinton accepted Greenspan's advice to cut the budget deficit. Greenspan in return did not oppose higher taxes. The bond markets decided Clinton was serious about the deficit. Many analysts believe that was a turning point in sparking the stock market boom of the '90s.

When historians judge Greenspan, they may focus on one date in particular: Oct. 19, 1987, when the Dow Jones Industrial Average fell 23 percent in one day. As panic set in, the Fed offered unlimited credit to financial institutions in trouble. The market quickly recovered.

Many stock holders remember Greenspan for the warning he tried to give them. In December 1996, Greenspan wondered out loud whether the stock market's rise reflected "irrational exhuberance." That did not discourage investors, who kept on buying until 2001 when, for many, the bubble burst.

Greenspan responded with interest rate cuts that slowly helped bring the economy back to recovery. Pleased with the economy but worried about inflation, he began a series of rate hikes.

Greenspan leaves his post widely regarded as a brilliant conservative, but a flexible one ready to adapt to changing economic conditions. He always wanted to know everything that could possibly be learned from statisticians, analysts and private conversations with big-time players inside and outside the government. He never had to say " the dog ate my homework." He was always prepared when he faced congressional committees.

One TV reporter remembers going to dinner with Greenspan last year. Twice during the meal people came up to speak, not to the TV guy but to Greenspan. One man thanked Greenspan for enabling him to retire with a decent income on his stock investments. Another man just wanted to shake the hand, he said, of someone who had served America so long and so well. Greenspan was polite but quickly returned his gaze to his plate. The celebrity part of his job is the only part he does not like.

Now he will have more time to spend with his wife, NBC News Correspondent Andrea Mitchell. More time, too, to work on his tennis game.

But he will write from time to time and give speeches. Any board of directors would be thrilled to have him. And, for a while anyway, he will continue to be what one pundit called the "rock star of economics."

A new rock band in Denver, looking for a name five years ago, decided on "The Alan Greenspan Project." It was flattering, but Greenspan still prefers opera and the recordings of those jazz bands he swung with 60 years ago.