Thursday, March 15, 2001

GREENSPAN'S VICE CHAIRMAN

WASHINGTON -- Six days before American stocks plunged on blue Monday, sophisticated investors were shocked by something given only cursory mention in most of the news media. President Bush succumbed to Federal Reserve Chairman Alan Greenspan's hectoring and renominated Vice Chairman Roger W. Ferguson Jr. for a full 14-year term on the central bank.

Keeping Ferguson as the Fed's second-ranking official certainly did not provoke this week's painful stock sell-off. But neither did the message reassure investors. Ferguson, appointed a Fed governor by President Bill Clinton in 1997 and named vice chairman in 1999, has no distinctive profile as a central banker. His retention confirms Greenspan's domination of the Fed.

When Clinton renominated Ferguson last year, Senate Banking Committee Chairman Phil Gramm blocked confirmation so that a new president could make his own appointment. But Greenspan vigorously lobbied Bush to pick Ferguson. To Fed-watchers, it looked like the chairman was seeking a quid pro quo for support of tax reduction.

More than at any previous time in his acclaimed 14 years of leading the central bank, Greenspan is under criticism in the financial community. As equity markets crater with an estimated $3 trillion loss of wealth, he applauds consumer spending -- a dubious argument echoed by Ferguson. One of the least distinguished rosters of the Board of Governors remains intact and unlikely to challenge the chairman. That's the way Greenspan likes it.

What he didn't like was one of Ferguson's predecessors as vice chairman: Alan Blinder, a distinguished Princeton economist who in 1994 became the Fed's first Democratic governor in a dozen years. When Blinder tried to diminish Greenspan's emphasis on inflation, financial pages quickly designated the new vice chairman as a disruptive force. Those reports could have been discouraged by Greenspan even if they were not inspired by him.

How Greenspan "steamrollered" Blinder without directly confronting him is described in "Maestro: Greenspan's Fed and the American Boom" by Bob Woodward: "If there was a 2 percent or 4 percent probability that something might happen -- such as Blinder succeeding him or Blinder's star rising -- Greenspan worked to bring the probability down to zero. That's why Greenspan had stuck the knife in him, Blinder believed, in so many ways and so skillfully. And there were no fingerprints." Blinder left in 1996.

When Clinton tapped Ferguson for the Fed a year later, mainly out of need for an African-American central banker, Greenspan had never heard of him. But he learned to love him. Ferguson, a partner at the McKinsey international consulting firm, was not in the class of recent Vice Chairmen Preston Martin, Manuel Johnson, David Mullins, Alice Rivlin and Alan Blinder. Uninterested in monetary policy, he makes the trains run on time at the Fed -- and does not threaten Greenspan.

Greenspan wanted no conservative Republican version of Blinder who would challenge his policy decisions. So, with the chit for having supported (however vaguely) tax cuts, Greenspan pressed Bush to reappoint Ferguson. The president, wary of offending the chairman, finally agreed. "It helps in this town to be a good friend of Greenspan," Sen. Gramm told me.

But does it help the economy? To Fed-watchers who never criticize him publicly, Greenspan seems off-balance handling this economy. The central banker who condemned irrational exuberance in markets says nothing about irrational malaise. When he told Congress he was puzzled that lack of consumer confidence is matched by high consumer spending, he repeated the mistake of Japanese officials several years ago, as their economy collapsed while citizens were lured by discount prices.

Roger Ferguson, who now owes everything to Greenspan, sounds just like him. When he addressed a securities industry conference in New York recently, the vice chairman claimed these as "my own views," but actually, they imitated the chairman's: "A somewhat puzzling feature of the recent period has been that, despite the sharp weakening in sentiment, household spending appears thus far to have held up well."

Financiers and corporate officials had hoped for something better in George W. Bush's first Fed selection. The president has two vacancies to fill and might consider picking his own governors rather than let Alan Greenspan do the honors.

© 2001 CREATORS SYNDICATE, INC.