- The Washington Times - Sunday, July 21, 2002

Notwithstanding his exemplary management of both growth and recession, Fed Chairman Alan Greenspan has arguably best acquitted himself during three crises that truly threatened the world economy: the 1987 Black Monday stock market collapse; the 1998 Asian-Russian meltdown, which was exacerbated by the implosion of a major U.S. hedge fund; and the aftermath of September 11, when immediate action by the Fed prevented a devastating liquidity crisis. With a record like that and in the current climate of downward-spiraling investor confidence, it's no wonder that markets, politicians, workers and investors eagerly awaited his semi-annual visit last week to Capitol Hill.
Alluding to a couple of Mr. Greenspan's more descriptive phrases "an outsized increase in opportunities for avarice" and "infectious greed" the New York Times headline screamed "Fed Chief Blames Corporate Greed," a notion Democrats were only too happy to embrace. But Mr. Greenspan said far more than just that. He observed, for example, that in "too many cases" there was a general breakdown among the "many bulwarks safeguarding appropriate corporate evaluation," including "lawyers, internal and external auditors, corporate boards, Wall Street security analysts, rating agencies and large institutional holders of stock," all of whom "failed for one reason or another." He could have added journalists. Moreover, Mr. Greenspan also noted that the "corporate governance and business transparency problems" contributing to the run on equities "evidently accumulated during the earlier rapid runup in these markets." That period, of course, coincided with the Clinton-Gore administration; the problem worsened significantly after Mr. Greenspan himself warned of "irrational exuberance" in December 1996.
In their intensifying competition to increase regulation to "solve" the business transparency problems, Democratic and Republican legislators would do well to appreciate the extent to which Mr. Greenspan credits "past deregulation" for "strengthening competition domestically," a process that has greatly contributed to the fact that "price inflation has fallen in recent years to its lowest level in four decades." Mr. Greenspan also implored Congress, as it designs changes to the regulatory framework, to "keep in mind that regulation and supervision of our financial markets need to be flexible enough to adapt to an ever-changing and evolving financial structure. Regulation," he emphasized, "cannot be static or it will soon distort the efficient flow of capital from savers to those who invest in plant and equipment."
All things considered, Mr. Greenspan delivered an essentially upbeat analysis of the economy. To the extent that economic growth for the first half of 2002 begins to reflect itself in final demand in a sustainable way an extremely important condition the Fed expects annual growth for both 2002 and 2003 to hover between 3.5 percent and 4 percent, with consumer inflation remaining below 2 percent. Regulatory overkill, of course, would hardly be conducive to achieving the sustainable final demand that Mr. Greenspan deems to be so critical.
It remains to be seen whether the current market turmoil will eventually present Mr. Greenspan with a challenge to the world economy comparable to the three crises he so successfully managed in the past. If such a crisis does materialize, however, the nation, and the world, will once again be fortunate to have the steady and proven hand of Mr. Greenspan at the wheel.

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