ENGLISH VERSION - MarketWatch 17.11.08
Two Fed chiefs with wildly contrasting legacies
LONDON (MarketWatch) -- The chairmanship of the Federal Reserve Board is, and always has been, a deeply political office.
This is in dramatic contrast to the status of central bank governors in Europe, who - whatever their stature and degree of independence -- can never entirely throw off the air of financial technicians. When they leave office, European central bankers may advise investment banks, join think-tanks, sit on company boards and play golf -- but they nearly always leave the limelight far behind.
The most recent former incumbents at the Fed, Paul Volcker and Alan Greenspan, two men who dominated the institution for more than a quarter of a century, are in a different league. They remain in the center of public interest. And they offer a study in contrasts that could hardly be more divergent.
On the one hand, Volcker, combined a towering presence with a sometimes startlingly unpretentious demeanor. He was a public servant in the best sense of the word.
After quitting the Fed in 1987 he became chairman of Jim Wolfensohn's investment banking boutique, but kept in the line of civic duty with a string of public service responsibilities, whether overseeing post-Enron accounting practices, investigating Nazi war-time gold transactions, or chasing corrupt officials in the United Nations' Iraq "oil for food" program.
During the 1970s Volcker gained huge international respect as the U.S. Treasury's globe-trotting trouble-shooter for international monetary affairs, presiding over the collapse of Bretton Woods and trying to patch up the aftermath. He won his inflation-busting spurs as the architect of a savage increase in interest rates in 1979 after the Fed moved on to direct targeting of the money supply -- thrusting the U.S. into recession, ditching Jimmy Carter's chances of re-election and paving the way for Ronald Reagan.
Volcker was hardly Mr. Popular at the time, but -- not just reflecting time's patina -- his reputation has gained a guru-like significance over the years. Interestingly, as a genuine internationalist, he has always been a fan of the euro and probably ranks as the most senior American full-heartedly to back the now 10-year-old European currency.
At the opposite end of the spectrum stands Greenspan, whose stock has fallen in the past two years just Volcker's has risen.
In an example of what now appears to have been an absurd personality cult, Greenspan attained near-deity status as the Fed's all-knowing, all-determining monetary "Maestro." Tony Blair, then UK prime minister, and Gordon Brown, now his successor, were among the many who succumbed to his spell, arranging for Greenspan to receive an honorary knighthood in 2002.
As well as becoming an "honorary adviser" (whatever that is) to the UK Treasury after he retired (a post for which he received no payment), Greenspan was showered with highly-paid advisory posts, made several lucrative speeches on monetary policy, and dashed off his memoirs, published in September 2007 -- a hastily written work, which will rank as a significant contribution neither to literature nor to economic understanding -- and gave absolutely no hint of the burgeoning credit crunch.
In contrast to Volcker, Greenspan never believed in the euro, and confesses himself amazed that it started on time and has given every appearance of working.
Greenspan's memoirs are remarkably frank about his lack of fellow-feeling with his predecessor. His passages about Volcker in fact reveal as much about the author as about the subject: "Volcker and I were not personal friends...in conversation I always found him quite introverted and withdrawn. He didn't play tennis or golf -- instead, he liked to go off by himself and fly-fish. He was a bit of mystery to me."
Greenspan's theories on the benefits of derivatives, on the self-healing power of markets and the benign consequences of deregulation are now, as we all know (and as Greenspan himself, in Congressional testimony, has more or less admitted), largely discredited. Volcker's ties with President-elect Barack Obama make him, at the age of 81, an unlikely symbol of hope and regeneration and a possible candidate for the new Treasury team. Greenspan, a year older, of course expects no phone call from the new administration. He has more than enough time to reflect on how reputations that take decades to build can crumble in a much shorter time.
