Even as a saxophone player in a 1940s swing band, Alan Greenspan had a passion for staying in control. While some of his fellow musicians smoked marijuana or snorted stronger drugs, the future chairman of the Federal Reserve Board kept track of the band's money. "Some people used to complain that the band was smoking these funny hand-rolled cigarettes," recalls Washington lawyer Leonard Garment, another sober-sided member of the touring ensemble. "But Alan was clean as Clark Kent: he handled the books and never ran a deficit."
Yet since the U.S. Federal Reserve raised short-term interest rates on Feb. 4 and again on March 22, the man who is often called the second most powerful official in Washington has seen the world's financial markets spin far beyond his -- or anyone else's -- control. Worse yet, Greenspan, probably one of the most political of the political appointees in the job, now finds himself under assault -- and not just because some have blamed him for the markets' recent bungee jumping. Ironically, it is his almost Clintonian sense of dealmaking and compromise, often for the purpose of protecting his turf, that helps explain why so many people lately have been second-guessing the Republican appointee.
The complaints begin with the chaos that has sent global stock and bond prices reeling in recent weeks, knocking nearly 10% off the Dow Jones industrial average since its peak on Jan. 31 and placing the future of Wall Street's three-year-old bull run in serious doubt. But beneath the immediate outcry lies a more fundamental criticism of the way Greenspan has tried to keep his balance between several constituencies. According to this line of attack, Greenspan, who fiercely resisted White House pressure for lower interest rates during the Bush Administration, has sought to make an ally of Clinton in an effort to fend off those in Congress who want to encroach on the Fed's autonomy. At the same time, he has tried to satisfy the inflation hawks inside the Fed. The result, say some critics, is that his approach to fighting inflation has been too gradual. Instead of soothing the markets, the Fed's modest one-quarter-point rate increases in February and March simply fueled ) suspicions that more rate hikes were on the way. While no central bank official has publicly criticized Greenspan, one Fed watcher asserts, "I have found by talking to regional Federal Reserve Bank presidents that there is a revolt going on, with them saying that they want to make interest policy, not have the White House do it."
The financial turmoil fed through to home buyers last week as rising long- term rates pushed the average cost of 30-year, fixed-rate home mortgages to 8.47%, the highest level in 22 months. Just last October, the rate stood at 6.74%. At the same time, stock prices gave jittery investors another wild ride as the Dow average plunged nearly 84 points at the opening bell Monday before finishing up 38 points for the week on Friday.