Greenspan will prove the hardest act to follow for Bush's chosen one

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The Independent Online

A mixture of a dazzling track record, seemingly omniscient sagacity and a cultivated taste for Delphic utterances have turned him into the central banking equivalent of a rock star. Presidents come and go (the Fed chairman has served four of them) but Mr Greenspan it seemed went on for ever, deftly navigating every crisis that markets, business cycles and international terrorists could throw at him.

But the era is almost at an end. Supreme Court nominations and the aftermath of Hurricane Katrina have occupied the bulk of George Bush's public time of late. But he must also select a person to take over command at the Fed - a post often described as the second most powerful in Washington, with responsibility for the interest rate policy that guides the world's largest economy. And time is beginning to run short.

For weeks now, Mr Bush and a small group of top aides, led by Dick Cheney, the Vice-President, have been quietly compiling a shortlist of possible successors to Mr Greenspan. First, however, his replacement must be confirmed by the Senate, whose long Christmas recess probably means that process be completed by mid-December at the latest.

The timetable could slip, but the chairman has indicated he would like to bow out on the appointed day, for which a valedictory Fed board meeting has long been scheduled. If so, then Mr Bush will probably announce his choice within the next month.

Out in the magnificent Wyoming rockies this summer, the traditional central bankers' symposium at Jackson Hole, organised by the Federal Reserve Bank of Kansas City, turned into a Greenspan admiration society. The chairman "had a legitimate claim to being the greatest central banker", according to a paper presented by two Princeton professors, Alan Blinder (a former Fed vice-chairman) and Ricardo Reis. True, the authors note, posthumous disaster could yet befall Mr Greenspan, if his departure is accompanied by the Doomsday Scenario of which some economists warn - a bursting housing bubble, a collapse of the dollar, and a recession caused by soaring interest rates, all in some measure caused by the Fed's excessively lax monetary policy and the huge accumulation of personal and government debt which that policy permitted.

But as of now the Greenspan record is magisterial, from his handling of Wall Street's Black Mondaycollapse in October 1987, just months after he took office, to the Asian and Russian financial crises a decade later, and the potentially devastating crisis at the giant Long-Term Capital Management hedge fund in 1998. His term was marked by low inflation, and strong sustained growth, interrupted only by two very mild recessions, in 1991/92 and 2000/01.

It will take years for a successor to acquire the credibility and mystique whereby crises seemed on occasion to resolve themselves as if by magic, once it emerged that the discreet Mr Greenspan was on the case. And even assuming the Doomsday Scenario does not materialise, the environment in which his successor operates will surely be less benign. Sooner or later, the day of reckoning will come for America's enormous trade and budget deficits. The global economic and financial challenge from China, Asia - who knows, from Europe too - will surely grow. Possibly too, the dollar will no longer be the automatic reserve currency of choice, making it harder for the US to print its own currency to finance its deficits. But that is for tomorrow. Right now all eyes are on Mr Bush as he weighs his choice.

Speculation focuses on three names in particular. The front runner is Ben Bernanke, a former Fed board member who now heads the President's Council of Economic Advisers - the job the outgoing chairman held under President Gerald Ford in the mid-1970s. Mr Bernanke is said to be well regarded by Mr Greenspan (who will surely be an informal adviser in the choice of his successor). True, he has been a consistent supporter of inflation targeting, which Mr Greenspan opposes - but also of greater central bank openness, a cause dear to the latter's heart.

By contrast, the star of Marty Feldstein, a Harvard economics professor and another former CEA chief (under President Reagan), may be waning. At 66, he has unchallenged intellectual heft, and is a known and trusted quantity on Wall Street and in international central banking circles. But his record has two blemishes. Resurgent supply-siders have never forgiven Mr Feldstein for his strong criticism of budget deficits (which caused his break with the Reagan White House in 1984). More recently, there has been the small problem of his seat on the board of controversy-plagued American International Group, whose chairman, Maurice "Hank" Greenberg, was forced to resign this year amid allegations of accounting irregularities.

The third widely tipped candidate is Glenn Hubbard, the dean of Columbia University's business school, and yet another former CEA chief (between 2001 and 2003). If cheerleading for Bushonomics were the sole criterion, Mr Hubbard - whose economics doctorate at Harvard was supervised by Mr Feldstein - would be the clear favourite. He is a fervent supporter of tax cuts and of the private investment accounts that featured in Mr Bush's moribund plan to reform social security. But monetary policy is not his strong suit, while at 46, he may be deemed too young for the job.

But this President loves to surprise, and could well look elsewhere. Roger Ferguson and Donald Kohn, vice-chairman and board member respectively of the Fed, are plausible internal candidates. Another touted outsider is John Taylor, a professor at Stanford University, who served as Treasury undersecretary for international affairs in Mr Bush's first term. Mr Taylor has the right mix of academic and Washington expertise.

Then there is the former Treasury secretary Robert Rubin, a close friend of the outgoing chairman and architect of the Clinton boom. Mr Rubin, chairman of Citibank, would win the Wall Street vote by a landslide, but he probably burnt his boats with his backing for John Kerry during the 2004 election.

Whatever else, this is one appointment where Mr Bush must resist the temptation of cronyism. The pre-requisite for any Fed chairman is independence: not just independence of judgement, but independence from the prevailing politics of the day. Even though he was a supporter of Mr Bush's tax cuts, the sheer length of Mr Greenspan's service placed him above the fray. The merest suspicion that Mr Bush has picked someone because he knows him well, and that he shares the President's economic views, could destroy confidence in the next chairman, even before he takes office.

Insiders and outsiders

Alan Greenspan: Steps down on 31 January 2006

Ben Bernanke, 51: Mr Bush's chief economic adviser. As a Boston Red Sox fan, he shares the President's love of baseball. On the Fed Board from 2002 to this year, before moving to the White House. A monetarist and anti-inflation hawk, he is favourite to succeed Mr Greenspan.

Glenn Hubbard, 46: A Bush loyalist, who served at the Treasury under the first President Bush, he was head of the CEA between 2001 and 2003, and an architect of the Bush tax cuts. Criticised as being too 'political' - but strongly tipped by many in the know.

Marty Feldstein, 66: Perhaps too old, given Mr Bush's propensity to appointing younger men (e.g. the 51-year-old John Roberts as Chief Justice). But as a Harvard professor with strong ties to Wall Street and long Washington experience, his credentials are strong.

Robert Rubin, 67: Ex-Goldman Sachs co-chairman, former Treasury secretary, now head of Citibank. He would delight Wall Street and the international financial community. But could Mr Bush reach out to a Democrat who supported John Kerry in 2004? No way.

Roger Ferguson, 53: An in-house candidate, on the Fed board since 1997, and Fed vice-chairman since 2003. Trained as a lawyer, he is known internationally, as chair of the central banks' Committee on the Global Financial System. A clear outsider.

John Taylor, 58: Economics professor at Stanford. From 2001 to this year he was Treasury point man for foreign economic policy, as undersecretary for international affairs. Author of the 'Taylor Rule,' a formula to help central banks set interest rates. Another outsider.

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