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The cult of Greenspan
Despite growing criticism, media-driven faith in the Fed chairman remains pervasive. This time, though, he just may be out of miracles.

BY DAN KENNEDY


A FEW NOTES on Federal Reserve Board chairman Alan Greenspan — central banker extraordinaire, media icon, and the world’s most unlikely pop-culture hero:

• In the R-rated webzine Nerve, Maggie Cutler (a/k/a Kitty Lyons) fantasized last year about having sex with Chairman Al. Early in the, uh, mating process he tells her seductively, “Past successes are not to be taken as a guarantee of future performance.” Following a passionate tryst comes a letdown. “As my post-orgasmic bubble bursts,” Cutler wrote, “I suddenly remember: most of his money is in blue chips and cash! ... That bet-hedging faker.”

• Last July, the Motley Fool, the original go-go service for online investors, published the “Top Five Signs You’re Falling in Love with Alan Greenspan.” Number one: “You fire a baseball at your television every time you see that hussy Andrea Mitchell.” For the uninitiated, NBC reporter Mitchell married Greenspan several years ago.

• Three years ago, the New Republic reported that employees of a Wall Street bond-trading company had built a Greenspan shrine with photos, quotations, and a chair the great man had once sat in. It turned out that this tale was one of the elaborate fabrications of soon-to-be-exposed staff writer Stephen Glass. When the article first appeared, though, such devotion seemed so natural that no one even questioned it.

Fans have created Web sites in Greenspan’s honor. Imus refers to him as “Crazy Al.” The New Yorker has told us that he reads briefing papers while sitting in the tub for an hour or two every morning. NPR has reported that more people have heard of Greenspan than the lead singer for the boy group ’N Sync. The Samuel Adams beer company claims it has conducted a poll showing that, even after the recent stock-market woes, beer drinkers would rather “toast” than “roast” Greenspan by 50 percent to 30 percent.

Not bad for an elderly, gnomish Ayn Rand disciple who speaks in indecipherable code and whose main job is to preside over a board of financial wonks who diddle with interest rates.

But these days Greenspan the Infallible is showing signs that he may be merely human after all.

Consider, for example, that during the presidential primaries last year, John McCain declared that not only would he reappoint Greenspan, but “if Mr. Greenspan should happen to die, God forbid, I would do like [they] did in the movie Weekend at Bernie’s. I’d prop him up and put a pair of dark glasses on him and keep him as long as we could.” The media not only laughed, they applauded, taking McCain’s quip as a sign of his good sense, even if they were not necessarily endorsing his taste in political imagery.

Now, with the stock market in the toilet, some critics are measuring Greenspan for a pine box. In his syndicated column last week, Fox News Channel talk-show host Bill O’Reilly whacked Greenspan for having the temerity to chow down at New York’s pricey Le Cirque in the midst of market turmoil. “While millions of Americans are watching in horror as their mutual funds wither, Greenspan is living large. Let ’em eat cake,” sneered O’Reilly.

And boneheads like O’Reilly aren’t the only ones going after Greenspan. New York Times columnist Paul Krugman, a Princeton University economist formerly of MIT, has written so harshly of Greenspan’s leisurely approach to cutting interest rates that New York magazine media critic Michael Wolff calls him “the guy who took down Greenspan” — “a big, ballsy move,” Wolff writes, that brought “lots of clucking” within the Times.

The clucking has only just begun. In January 2000, the Dow Jones Industrial Average nearly hit 12,000. Last Thursday, it hovered around 9100 before recovering a bit at the end of the day. Even worse has been the performance of the technology-laden NASDAQ, the home of day traders, dot-coms, and dreams — until recently — of unimaginable riches. Last March, it nudged above 5000; last Thursday, it briefly dipped below 1800. As analysts have noted repeatedly, some $4 trillion in stock-market wealth has disappeared since the market reached its height a year ago. And the restive media are looking for someone to blame.

There’s more than a little absurdity to this. As the legendary Harvard economist John Kenneth Galbraith observed on the New York Times op-ed page several weeks ago, Greenspan’s ability to move the market up or down is greatly exaggerated by the media and the public. Galbraith offered Greenspan some faint praise, citing his “extraordinary theatrical talent,” and wrote, “To rely on the [Federal] Reserve as a remedy for an emerging recession is optimism carried to the point of foolishness.”

Galbraith’s realism notwithstanding, most commentators are still hoping for another Greenspan miracle, with his critics being cast as opportunists. Take Dan Wasserman’s cartoon in this past Saturday’s Boston Globe, which features a Republican elephant and a Democratic donkey sharing some beers and some laughs at a bar. Elephant: “It turns out this whole mess is Alan Greenspan’s fault.” Donkey: “I’ll tell ya, he is the handiest little guy.” And, as New York Times stock-market columnist Gretchen Morgenson wrote of Greenspan on Sunday, “most Americans still view him as the man who can save markets with a wave of his baton.”

But the fact that Greenspan is being criticized at all is a considerable departure from the recent past.

LIKE BILL Gates, that other poster boy of New Economy prosperity, Greenspan became the object of cult-like worship during the 1990s.

Bob Woodward, in his Greenspan biography Maestro (Simon & Schuster, 2000), summarized it like this: “With Greenspan, we find comfort. He helps breathe life into the vision of America as strong, the best, invincible. The fascination with Greenspan has become one of the ways in which the country expresses confidence in itself and in its future.” (Later, in an interview with Salon, Woodward allowed that “maybe the paperback version of my book will have to be entitled Maestro Emeritus or Former Maestro.”)

What makes Greenspan’s cuddly image hard to fathom is that the secretive, unaccountable power he wields is precisely the sort of thing that has long enraged the more populist elements of American society. Andrew Jackson was elected president in large part because he vowed to abolish the Bank of the United States, a promise he made good on; we have not had a national bank since. William Jennings Bryan based his own futile but eloquent run for president by telling dirt farmers everywhere that they would not be sacrificed on a “cross of gold” — an archaic-sounding pledge that amounted to a promise of readily available low-interest loans, Wall Street financial interests be damned.

The Federal Reserve, established in 1913 to control interest rates and, it was hoped, stabilize the economy, had — until the 1990s — been attacked by presidents and conspiracy theorists alike. As has been memorably observed, the Fed’s role is to take away the punch bowl just as the party gets going — in other words, to ratchet up interest rates, and thus slow the economy, in order to prevent inflation.

It was Greenspan’s good fortune to preside over the Fed at a time when the media were promoting the notion that anyone could get rich through the stock market — and just enough people were actually doing so that the image did not seem all that far off from the reality. Enticed by Web sites such as the Motley Fool and TheStreet.com, and continually fed up-to-the-second news by CNBC, millions of average Americans plunged into the market during the 1990s. Today it’s estimated that more than half of all households own stock — an unprecedented democratizing of what had always been a plaything of the plutocracy.

And yes, Greenspan’s accomplishments are real and impressive. Shortly after he became Fed chairman in 1987, the stock market plunged more than 20 percent. Greenspan’s smooth management, which included jawboning large financial institutions to make sure the money supply kept flowing, made the crash little more than a slightly unpleasant memory. He strongly supported the Clinton administration’s successful bailout of Mexico in 1995, and he swiftly lowered interest rates to minimize the effects of the “Asian contagion” of 1997.

More than anything, though, Greenspan is best known for letting the economy — and the stock-market bubble — grow of their own accord. After Bill Clinton signaled that he was serious about deficit reduction by raising taxes and controlling spending, Greenspan took a largely hands-off approach to the economy’s rapid expansion. Among central bankers such as Greenspan, it’s almost holy writ that rapid growth leads to inflation; yet Greenspan and his board kept interest rates low, bringing unemployment down to levels not seen in several decades, even as inflation remained in check. He expressed occasional consternation about a stock-market bubble that seemed based more on feverish speculation than on real value (in 1996, when he worried aloud that investors might be showing “irrational exuberance,” the Dow was only at 6000). For the most part, though, his motto was Laissez les bon temps rouler. And “irrational exuberance” became the title of a hot-selling jeremiad by Yale economist Robert Shiller that was published by Princeton University Press last year.

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