Alan Greenspan's First Year Viewed as Success

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WASHINGTON - A year ago, there was talk that Alan Greenspan might become the George ``Twinkle Toes'' Selkirk of the U.S. economy.

Like Selkirk, the journeyman baseball player who took Babe Ruth's place in the New York Yankees' starting lineup, Greenspan succeeded a legend.

How could this mild-mannered economist replace the towering Paul Volcker, who as chairman of the Federal Reserve Board grew so large in stature that he was often described as the second most powerful man in America?

In his first year as Fed chairman, Greenspan has done quite well, thank you, according to the testimomy of members of Congress, the Reagan administration and private economists.

He's won friends in Congress by being more open and candid than Volcker, who liked to cloak his answers at congressional hearings behind a haze of cigar smoke and deliberately vague qualifiers.

He has gained solid support inside the central bank by actively seeking out the opinions of the other governors and the professional staff, who had at times felt left out of decisionmaking during Volcker's eight-year tenure.

To be sure, there have been critics. At one time or another, Greenspan has been attacked for tightening credit too much, not tightening enough or for changing back and forth too often.

But all agree that Greenspan passed his toughest test with flying colors. When the stock market suffered its worst day ever, a 508-point drop on Oct. 19, Greenspan acted decisively.

Mindful of the mistakes the Fed had made in the 1929 market collapse, Greenspan quickly reassured a jittery financial system that the central bank would supply all the credit necessary to compensate for the sudden loss of one-half trillion dollars in stock market wealth.

Greenspan began developing contingency plans for just such a calamity as soon as he took office on Aug. 11, 1987, ordering staffers to draw up a game plan for the Fed to follow in the event of a market emergency.

The result was a loose-leaf notebook with a pink coversheet marked ``restricted-controlled,'' the Fed's label for top secret.

This document, which called for establishing a crisis-command post at the central bank, became the guidebook Greenspan and other top policy-makers used after Black Monday.

Greenspan ran the Fed's crisis center from his office, keeping in touch with regional Fed bank presidents across the country to make sure bank credit needs were being met. Federal Reserve bank examiners were dispatched to the major banks to provide on-the-scene reports.

``Greenspan managed the stock market crisis with enormous finesse,'' said Lyle Gramley, a former Fed governor. ``People now say nothing much happened following the market collapse, but that's because the Fed's skillful handling prevented a total financial meltdown.''

The move to easier credit had represented an about-face for the Fed, which in the weeks before the market turmoil was actually tightening up on credit. On Sept. 4, after being in office for less than a month, Greenspan oversaw an increase in the Fed's discount rate to 6 percent, the first time this fee the Fed charges to make bank loans had been raised in three years.

The sudden increase was seen as a macho signal that Greenspan intended to be just as tough an inflation-fighter as Volcker. But it also opened him to criticism that he had needlessly unnerved already jittery financial markets and had actually contributed to the market's later crash.

Greenspan dismisses charges that the Fed's tightening played any role in the market plunge, saying that stocks had become overpriced and the record drop was ``an accident waiting to happen.''

Just Tuesday, the Fed announced another increase in the discount rate, to 6.5 percent, saying the action ``reflects the intent of the Federal Reserve to reduce inflationary pressures'' and ``was taken in light of the growing spread of market interest rates over the discount rate. …