Altered U.S. bond holdings data gives the game away


Administration Considers
Delaying Fed Chief's Exit;
An Extra Few Months Would Give
Greenspan the Longest Tenure

By Nell Henderson
Washington Post
Wednesday, May 18, 2005

Federal Reserve Chairman Alan Greenspan frequently urges Americans
to postpone retirement and stay on the job longer.

He may soon get the chance to do so himself.

Bush administration officials are mulling whether to encourage
Greenspan, 79, to continue as Fed chairman for at least a few months
beyond the Jan. 31 expiration of his term, according to sources told
of the possibility.

That would give the White House more time to broaden the search for
possible successors, looking beyond the academic and policy worlds
to the corporate world, as they have been urged to do by some
financial analysts.

Greenspan did not comment for this article but indicated in a
commencement speech Sunday at the University of Pennsylvania's
Wharton School that he still intends to leave the Fed early next
year. "I have more in common with you graduates than people might
think," he said. "After all, before long, after my term at the
Federal Reserve comes to an end, I too will be looking for a job."

A short extension might be attractive to Greenspan because if he
remains at the helm until May 11, he would become the longest-
serving Fed chairman ever, exceeding the 18 years, nine months and
29 days served by William McChesney Martin Jr., from 1951 to 1970.

The law allows a Fed chairman to continue beyond the expiration of
his term until a successor is confirmed by the Senate. Thus, if Bush
wanted Greenspan to stick around a bit longer, he could just put off
nominating a replacement.

Bush's deputy chief of staff, Karl Rove, told Bloomberg News last
month that it would be "premature" to announce a nominee this year.

"President Bush believes Chairman Greenspan is doing an excellent
job," said White House spokesman Trent Duffy. He declined to comment
on whether Greenspan might be encouraged to stay on, saying, "We
don't speculate on personnel decisions."

Greenspan is highly regarded in global financial markets and in
Washington, but delaying the identification of a successor would
carry risks, including prolonging the uncertainty, several Fed
watchers said.

"Greenspan is doing such a terrific job, you can see how they would
be tempted," said Kevin A. Hassett, director of economic policy
studies at the American Enterprise Institute. But, he said,
postponing a nomination would send "a negative signal to the
markets. ... It implies that Greenspan is irreplaceable. It implies
if we don't have Greenspan, everything will fall apart."

Sen. Richard C. Shelby (R-Ala.), chairman of the Senate Banking,
Housing and Urban Affairs Committee, said, "If we could keep Alan
Greenspan on for 10 more years, I wouldn't have any qualms, based on
his record which has been exemplary overall." But, he added, "an
appointment would show decisiveness that [White House officials] are
on top of the game, which I'm sure they are."

If Greenspan agreed to stay, it could be seen as "further eroding
the barriers that should exist between the White House and the Fed,"
said Thomas Schlesinger, executive director of the Financial Markets
Center, a nonprofit organization that monitors the Fed.

The strategy could create the appearance that Greenspan was in some
way being rewarded by the White House for his strong public support
of Bush policy priorities such as tax cuts and individual Social
Security accounts, said Kenneth H. Thomas, a lecturer in finance at
the Wharton School.

The White House's interest in extending Greenspan's run comes as
some financial analysts and business leaders have urged
administration officials to look for candidates with both his grasp
of abstract economic principles and his sense of how the economy
evolves in the real world.

Greenspan's fans attribute much of his success to his decades-long
experience as a business consultant, which gave him a deeply
intuitive understanding of how executives decide whether to invest,
hire or raise prices and how financial markets operate.

His predecessor, Paul A. Volcker, highly regarded as the Fed chief
who broke the back of double-digit inflation, had worked for Chase
Manhattan Bank and did not have a PhD in economics.

By contrast, all of the leading names on the lists of likely
Greenspan successors are prominent academic economists, with little
or no business experience. That's a source of discomfort for some
analysts who praise Greenspan's willingness to question the data,
challenge the models and break with economic convention at times.

"There are a number of concerns regarding the choice of an academic
Fed chair," said Richard Yamarone, director of economic research at
Argus Research Co., an independent financial analysis
firm. "Academics tend to reside in 'schools of thought,' with a
strict adherence to the theoretical. ... You cannot execute policy
with respect to what should happen. Or what traditional economic
theory suggests. [Fed] policy is conducted in the very dynamic real
world, with unforeseen shocks and countless outcomes. Far too many
to be captured in an econometric model."

A current or former chief executive of a major corporation "would
make for an interesting choice," said John J. Castellani, president
of the Business Roundtable, an association of such executives,
adding that he meant no criticism of the academic candidates.

There is often a difference, he said, "between what the economy is
really doing and the theoretical perspective on what it should be
doing. ... A CEO is really at the nexus of monetary policy, demand
and the global economy."

That idea sends shudders through economists who remember G. William
Miller, a former chief executive with no formal economics background
who was Fed chairman for less than two years under President Jimmy
Carter, when the average inflation rate exceeded 9 percent.

Miller "was the worst Fed chairman we probably ever had," said
William Dudley, chief economist at Goldman Sachs U.S. Economics
Research. "It would be nice to have broader experience, but we don't
want to hire someone without solid economic grounding."

Fed board members in the past have stayed on the job while awaiting
confirmation of a successor. Greenspan himself was chairman "pro
tempore" for several months in 1996, after his second term as
chairman expired and before he was confirmed for a third; his board
term continued throughout.

President Bush and his top aides have said very little publicly
about the process of choosing a new Fed chief, even though the
administration started compiling names of possible successors three
years ago.

For many months, the top of the list has included Harvard economist
Martin S. Feldstein, 65, and the dean of Columbia Business School,
R. Glenn Hubbard, 47, according to economists and political
operatives on Wall Street and in Washington, including several with
close ties to the administration. Both have advised Bush.

One name elevated to the top tier recently is Fed board member Ben
S. Bernanke, 51, former chairman of Princeton University's economics
department and Bush's nominee to become the next chairman of the
president's Council of Economic Advisers. Hubbard was the council's
chairman in Bush's first term; Feldstein held the job under
President Ronald Reagan, Greenspan under President Gerald Ford.

Greenspan, Feldstein and Hubbard have been directors of several
corporations. Bernanke has not.

Greenspan also ran his own economic consulting firm, Townsend-
Greenspan & Co., Inc., for 20 years before joining the CEA and for
10 years after.

One obvious candidate who is both an economist and a former business
consultant is Fed Vice Chairman Roger W. Ferguson Jr. He's a
Democrat, though, and therefore considered a long shot.

Greenspan has drawn deeply from his business experience during his
nearly 18 years as Fed chief, helping guide the economy and the
markets through a stock market crash, two recessions, several
international financial crises, the nation's longest peacetime
expansion, the 2001 terrorist attacks and other challenges.

One lesson from the Greenspan years for many economists was not that
their models should be discarded or that academics should be
disqualified; rather, a successful Fed chairman be must be open and

As former Fed board member Laurence H. Meyer wrote in a recent book
about his years on the Greenspan Fed, "While the chairman is willing
to play by the rules in normal times, he does not hesitate to depart
from them in unusual circumstances."


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