Greenspan: Financial Wizard of Oz

June 28, 2001

WASHINGTON – “How can one man have so much power and
not be held accountable?” asked Mike Heffernan after
reading “Greenspan derailed the New Economy” in yesterday’s WorldNetDaily.

“The press should demand that he answer questions,”
Heffernan vented, “and why has he not been asked to
resign for such a bungling of his job?”

Such questions are nagging many other readers, too,
especially older ones who have had to put off their
retirement after seeing their latest 401(k)
statements.

As the chairman of the central bank of the richest
country in the world, Greenspan is the most powerful
man in the world. It’s not overstating it, really, to
say that your fortunes and those of everyone around
the globe ride on his judgment.

You may think that he’s checked by the other 11 members of the Federal Open Market Committee. Except, he can adjust interest rates between their board meetings. He has that unilateral power.

You may think that Congress – and therefore the
people – can control him. But all lawmakers can do is
call him to testify periodically under the
Humphrey-Hawkins Act. The hearings are an exercise in
futility, not accountability, because Greenspan just
obfuscates till everyone is bored silly.

You may think that the press can pin him down. In
fact, we have no access to him. No press conferences
or interviews are allowed. The high priest is
untouchable in his marble temple here on Constitution
Avenue. And the minutes to the FOMC meetings aren’t
available till long after the meetings, making it
impossible to study his reasoning for doing what he
does to the economy at the time he does it.

And, of course, you may think that at least he has to
answer to God, if no one else. But he doesn’t think
so. Greenspan is an atheist.

So here you have someone who is lionized in the press
as a genius – even though his work is wrapped in
secrecy and mystery, insulating him from any real
scrutiny – and yet, at the end of the day, he humbly
turns to no higher spiritual authority than a mirror.
A recipe for arrogance? You betcha.

It’s also a recipe for disaster, as we’re seeing now
in both the flagging economy and bear market, thanks
to his jihad against the Ghost of Inflation Past.

Greenspan is just a man, fallible like the rest of us.
But when he makes mistakes – the 1987 crash, the
1990-91 recession, the 1994 bear bond market, and the
current malaise – we all pay the price, and he seems
to just get more praise.

Just because Greenspan is a Ph.D. economist who most
likely does test a genius IQ, as his Objectivist
friends assure me, it doesn’t mean he’s “brilliant.”

Brilliance demands the ability to pull back and
process all the inputs, synthesize them, then test
them – and not be afraid to embrace new conclusions
about things.

There’s a creative process involved that seems lacking
in Greenspan. He’s more of a linear thinker, who gets
so besotted with data that he loses the forest (the
New Economy) for the trees (old statistical models).

I mean, this is a man whose idea of fun is to soak in
the tub and read one statistical report after another.

A Fed watcher on Wall Street who’s never been terribly
impressed with Greenspan, even when he was a private
economist in New York, once likened Greenspan to the
Wizard of Oz.

“Here’s this guy, projecting this huge brain, and
everyone’s in awe of him,” he told me. “But pull back
the curtain and there’s just this little man
frantically pulling at levers to maintain the image of
an intellectual giant.”

I would cut Greenspan some slack if he learned from
his earlier mistakes in over-tightening credit to
preempt what he saw as rekindling inflation, but that
only ended up strangling the markets and the economy.

But now he’s done it again.

And this isn’t an academic issue, folks. It’s
personal. What this one man – this single, flawed
human being – does eventually hits all of us in the
pocketbook.

In 1999 and 2000, when he ratcheted real short-term
interest rates up to their highest level since just
before the last recession, Greenspan sabotaged the
greatest productivity-led boom in U.S. history.

He not only took away the punch bowl, he turned over
the bean dip, yanked the CDs, popped the balloons and
cut the lights. All because he thought things were
getting too hot.

And now he’s trying to turn back on the lights and
restart the party. Too bad Greenspan didn’t just stay
in his bathtub, immersed in his numbers.

The party’s over, and who knows when, or if, the
digital revolution and all its fantastic innovation
and wealth creation will return.

When you get right down to it, one man is responsible
for derailing – hopefully, just temporarily – the
most promising era in the history of the world.

“How can one man have so much power?” A good question,
and one that more of us need to ask.

Endnote: Several readers of this column who
want to get rid of Greenspan have asked if, or when,
he’ll be term-limited out of office. He will have to
go, but not till Feb. 1, 2006.

That doesn’t mean he’ll stay at the Fed helm that
long, however.

President Clinton reappointed him to a fourth
four-year term that ends June 20, 2004. But President
Bush won’t likely reappoint Greenspan chairman then,
because he’ll have less than two years left on his
maximum term as a Federal Reserve Board member
(Greenspan, 75, would more than likely resign from the
board rather than finish out those last months as a
non-chairman). Members’ terms last 14 years.

Greenspan filled an unexpired term as a member when he
was first appointed on Aug. 11, 1987. Then he was
reappointed to the board to a full 14-year term which
began Feb. 1, 1992. Lucky us.

So, bottom line, we’re stuck with Greenspan till at
least June 20, 2004, but possibly longer.

Greenspan derailed the New Economy