Bernanke Inherits an Experienced Fed Staff
Tuesday, January 31, 2006
Alan Greenspan was unreachable on the morning of Sept. 11, 2001, as terrorists destroyed several blocks in the financial heart of New York City. Returning from a bankers' conference in Switzerland, the Federal Reserve chairman was flying in a jet over the Atlantic -- depriving the central bank of its vaunted crisis manager at a daunting moment.
But the Fed did fine without Greenspan that day, led by several people who have worked alongside him during other crises over his 18 years running the central bank. Fed officials and senior staff members swiftly reassured the world, through words and actions, that the U.S. financial system would keep working -- earning the chairman's praise when he returned the next day.
As Greenspan, 79, prepares to step down today, he leaves some uncertainty in financial markets about how the Fed will handle future crises under his successor, Ben S. Bernanke, who awaits Senate confirmation.
However, as Sept. 11 illustrated, Greenspan's legacies include a Fed full of battle-tested veterans who helped him calm the markets and steer the U.S. economy through the 1987 stock market crash, the international currency crises of the 1990s and two recessions, according to analysts and other observers.
"These people are competent and cool and have been through the wringer," said former Federal Reserve Board member Edward M. Gramlich.
These Fed officials and senior staffers, both in Washington and at the 12 regional Fed banks, will be a critical resource for the new chairman. Bernanke, 52, a former Fed board member, steps into the job with academic expertise and experience in monetary policy. But he has no experience in the business world or as a crisis manager, leaving analysts unsure how he would respond to financial shocks such as a stock market crash, dollar collapse, hedge-fund meltdown or another terrorist attack. He was unavailable for comment.
"He's unproven, but there are a lot of other people in the Federal Reserve with plenty of experience," said William Dudley, advisory director of Goldman Sachs U.S. Economics Research. "The institution is more than the chairman."
At the top of the list are Fed Board Vice Chairman Roger W. Ferguson Jr., 54, Fed Board member Donald L. Kohn, 63, and Fed Bank of New York President Timothy F. Geithner, 44.
Ferguson, an economist and a lawyer, was the only board member in Washington on Sept. 11, 2001, and led the central bank's response.
Through his office window at the Fed's headquarters on Constitution Avenue NW, Ferguson could see smoke rising from the Pentagon, while his television showed pictures of the burning World Trade Center towers in New York.
"Roger was leading meetings as the buildings were going down," recalled Gramlich, who was in Tucson that day and reached the Fed by telephone about two hours after the attacks. "They had gone through things pretty thoroughly asking, 'What can get screwed up and what can we do?' "
Ferguson worked closely that day with Kohn, then one of the Fed's top staff members, having risen through the ranks since 1975. He worked with Greenspan during the 1987 stock crash and through the currency crises of the 1990s and was among the chairman's closest advisers on monetary policy.