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WASHINGTON -- Investors jittery about how incoming Federal Reserve chairman Ben Bernanke will pan out can take some solace -- folks weren't sure some guy named Alan Greenspan was up to snuff either.
Investors didn't take the news so well on the day in June 1987 when Paul Volcker announced he was leaving the Fed after eight years and Greenspan was named to his position. Bond markets took their worst one-day beating in more than five years, and the dollar fell.
"The new chairman cannot just pick up Mr. Volcker's wealth of experience or his worldwide network of trust and respect," The New York Times said in an editorial at the time.
"Mr. Greenspan faces a daunting challenge in proving to the financial markets that he is a worthy replacement for the outgoing Fed chief," The Wall Street Journal said in an article.
"Greenspan ... will soon get his turn on the monetary tightrope," an article in U.S. News and World Report said. "If he keeps his cool, it could be a great act. But the risks of a nasty spill are also considerable."
Bernanke, a former Fed governor and current head of the White House Council of Economic Advisers, will take over at the Fed next week after Greenspan presides over his last policymaking meeting on Tuesday.
In many ways, Bernanke -- although widely respected in economic circles -- is more of an unknown to the public than Greenspan was in 1987. Greenspan in the early 1980s was chairman of a widely watched panel on reforming Social Security. He also served as chairman of the CEA for 21/2 years in the mid-1970s during President Ford's public "Whip Inflation Now" campaign. Greenspan also did numerous media interviews as head of a successful economic consulting firm.
Bernanke has served as chairman of the CEA only since June. Before that, he was a Fed governor for nearly three years and head of Princeton University's economics department. His only other public service was on a local school board.
Concerns about Greenspan
But no matter how well they knew Greenspan, people in 1987 were still nervous about him taking over the Fed. The concerns:
*International. Although Greenspan had a solid reputation as an economist, some worried that he lacked experience on the international stage. Although calling Greenspan an "excellent choice," BusinessWeek magazine in an editorial said he "lacks Volcker's worldwide stature."
*Political. Still others questioned whether Greenspan was too political. He, like Bernanke, had served as CEA chairman. With an election a little more than a year away, some commentators in 1987 questioned if Greenspan would not take the necessary steps to squeeze out inflation in an attempt to juice up the economy to keep a Republican in the White House.
*Mythical. And some questioned if Greenspan could fill the shoes of Volcker, who had become so revered and trusted that one economist in a Wall Street Journal article referred to him as a "financial demigod."
"We were nervous for all the reasons we're probably nervous about Bernanke," says Hugh Johnson, chairman of Johnson Illington Advisors, a money management company in Albany, N.Y.
"Paul Volcker was something of an icon for the financial markets," Johnson recalls. "The financial markets are always uncomfortable with change. ... Just as we were nervous about moving beyond Volcker, we're nervous about moving beyond Greenspan."
Several economists even warned Greenspan's appointment raised the risk a recession would hit the U.S. economy. As an economic consultant, Greenspan himself had predicted just a few months before his appointment to the chairmanship that a recession was likely coming in the not-so-distant future.
Marshall Vest was one of the economists who was quoted as saying Greenspan's arrival raised the chances of a recession in a USA TODAY article. Eighteen years later, Vest, now director of economic and business research at the Eller College of Management at the University of Arizona, says it's hard to imagine being worried about Greenspan's talents.
"I would give him very high marks," he says. "The economy has been much less volatile and much more predictable under his watch."
Former San Francisco Fed president Robert Parry says it's quite possible Bernanke, like Greenspan, will develop the larger-than-life reputation enjoyed by the two chairmen before him.
"I don't know if I would have said in August of '87 that Greenspan would have developed this aura as well," Parry says. "You just didn't know that at the time. ... In some respects, if you were to base it on training and area of expertise, experience ... you'd have to say Bernanke has a real shot of continuing to receive that kind of aura."
Said Princeton University economists Alan Blinder and Ricardo Reis in a paper delivered at a conference on Greenspan's legacy in August: "Back in 1987, the financial markets viewed the impending retirement of Paul Volcker as tantamount to the end of civilization as they knew it. But they got over it, as they will in 2006."
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