Greenspan's Career Looking Less and Less Illustrious

by: Tim Iacono

At the end of the month it will be two full years since former Fed Chief Alan Greenspan last sat in the big chair at the head of the big table in the big building on C Street. Now that the global financial system seems to be in peril, the luster is quickly wearing off of what was once thought to be a sparkling 18 and a half year career as the head of the nation's central bank.

Even The Maestro (any word on a follow up book by Woodward?) has got to know that the jig is up now that columnists are starting to quote authors of books on financial speculation and when sycophants like former Fed vice chairman Alan Blinder start casting aspersions.

Rich Miller at Bloomberg fills in the details in this report.

Hailed as perhaps the greatest central banker who ever lived when he left the Federal Reserve in 2006, Greenspan is under attack from critics ranging from the New York Times to economists at the American Enterprise Institute for his handling of the 2000-2005 housing boom. The former Fed chairman has taken to the media to defend himself, writing in the Wall Street Journal and appearing on network television.

"He's had a bubble reputation that derived from the growth of U.S. household wealth," said Edward Chancellor, author of "Devil Take the Hindmost: A History of Financial Speculation." "As that goes down, his standing as a superstar will suffer."

At stake is not only Greenspan's legacy but also the future of policies he espoused during 18-1/2 years atop the central bank. Critics blame his aversion to regulation and reluctance to use interest rates to puncture asset bubbles for the boom in mortgage lending and house prices that has since gone bust, threatening to throw the economy into recession.
Academics, including Princeton University professor and former Fed Vice Chairman Alan Blinder, Fed historian and Carnegie Mellon University economist Allan Meltzer and Stephen Cecchetti, a former Fed official now at Brandeis University, generally give Greenspan high marks for his performance as chairman. During his tenure, the economy weathered two recessions, each lasting less than a year, and enjoyed its longest expansion ever.

Some of the earlier enthusiasm for Greenspan's tenure has been tempered by the performance of the economy, particularly the housing market, since he left. Blinder, who wrote in a 2005 paper that Greenspan might be the greatest central banker, now hedges on whether that assessment still stands.
Cecchetti, professor of international economics at Brandeis' International Business School, said it's natural that Greenspan's legacy is being reassessed.

"With distance, you get perspective," he said. ``We'll get a much more balanced view of the Greenspan legacy as the years go by.''

That is, if we survive.