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
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
``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
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. …