Industry Mourns Volcker’s Departure, Hails Greenspan
Much of business and corporate America bemoaned the resignation Tuesday of Paul A. Volcker as chairman of the Federal Reserve Board but welcomed Alan Greenspan as an able replacement for a job that is sometimes called the second most important in the United States.
“It’s a shock,” said John Tuccillo, chief economist for the National Assn. of Realtors. “No one has the stature, both physical and psychological, that Volcker does, but Greenspan is about as close as we’ve got.”
“I’m going to miss him,” said William J. Shaw, vice president and treasurer at Earle M. Jorgensen Co., a steelmaker and distributor in Los Angeles. The lower inflation of the later Volcker years made the company far more competitive because it sharply cut costs, Shaw said.
Most of the nation’s business community--from manufacturers to retailers to bankers--has had a love-hate feeling about Volcker during his eight-year reign as chairman of the Federal Reserve.
They loved the 6-foot, 8-inch, cigar-smoking chairman when his tight monetary policies paid off in lower inflation and touched off an economic recovery in 1983. But they loathed the earlier period of 1980-82, when high interest rates and a deep recession marked the nation’s darkest days economically since the Great Depression of the 1930s.
Spokesmen for housing and mortgage-lending industries now praise Volcker, even though both segments of the economy were badly damaged in the early 1980s by the Fed’s tight-money policies.
More than 1,000 savings and loans have gone out of business since Volcker became Fed chairman in late 1979, while housing industry construction plunged in the early 1980s as mortgage rates soared to 17%.
But both industries have enjoyed a solid prosperity since 1983 as mortgage rates fell gradually into single digits.
“I’m sorry to see Volcker leave,” said John Rousselot, a former Southern California congressman who now heads a savings and loan trade group in Washington known as the National Council of Savings Institutions. “Most of our members felt comfortable with him.”
Reaction from organized labor was more skeptical.
“We have had a mixed reaction to Volcker,” said Rudy Oswald, director of research for the AFL-CIO. “He has generated confidence in the U.S. economy. On the other hand, he was unduly obsessed with inflation and not sufficiently concerned with unemployment.”
“Greenspan is more difficult to read,” Oswald continued. “He is a more partisan (political) representative than Volcker. There is some concern that the economy will be run with the 1988 election in mind.” (Greenspan was a key economic adviser to both former Presidents Richard M. Nixon and Gerald R. Ford.)
Choice Applauded
Officials in both housing and mortgage lending, though, said Greenspan is a wise choice to replace Volcker.
Joe C. Morris, chairman of the U.S. League of Savings Institutions, another S&L; trade group, called Greenspan “a common-sense economist with much valuable experience in shaping public policy.”
Morris also applauded a statement by Greenspan on Tuesday in which he emphasized the need to fight inflation.
“His record in public and private positions shows that he recognizes inflation as an ever-present problem that must not be allowed to endanger the nation’s economic well-being again,” Morris said.
Greenspan “is strongly opposed to anything that would start inflation,” said John Deaver, chief economist of Ford Motor Co. “I don’t think he worries as much (as Volcker does) about the weaker dollar causing inflation. It’s a change in degree rather than a change in policy.”
Expects Higher Rates
But Tuccillo, of the National Assn. of Realtors, predicted the Federal Reserve will have a more expansive monetary policy under Greenspan in order to boost economic growth. That, in turn, will boost interest rates and nudge mortgage rates slightly higher, he said.
The announcement about the change at the Fed comes at a time when interest-rate sensitive industries--such as banking and building--are very nervous. Fixed-rate mortgage loans have risen sharply this spring, spurting about 2 percentage points to 11% in April and May. The result has been turmoil and chaos in the nation’s housing and mortgage markets.
The Guard Changes
ALAN GREENSPAN
‘It is clear that a high priority of the Reagan Administration must be to make it credible to the financial community and all others that inflation will not be allowed to be an entrenched element in the American economy.”
Nov. 6, 1980.
“We may be at one of those periods in history where policy has very serious limitations. You hope that positive elements emerge. But my concern is that much of what policy can do is already in place.”
July 17, 1986.
PAUL A. VOLCKER
‘If we are going to progress and prosper, we need a sense of confidence that we are moving toward price stability at home and a sense of strong confidence in the dollar internationally. Those objectives are fundamentally related. They both require disciplined, persistent and consistent monetary policy, sensitive to both domestic and international objectives.’
July 25, 1979
‘All that volatility in exchange rates and interest rates in recent weeks gives a little taste of how vulnerable our own financial markets and our economy have become to what other people think. . . . We are rather obviously in danger of losing control over our own economic destiny.’
May 11, 1987
GREENSPAN WOULD BE 13th CHAIRMAN OF THE FEDERAL RESERVE
If his nomination is approved by the Senate, economist Alan Greenspan would become the 13th chairman of the Federal Reserve board since its founding in 1913.
The following are the previous heads of the U.S. central bank:
Charles S. Hamlin Aug 10, 1914 to Aug 9, 1916 W.P.G Harding Aug 10, 1916 to Aug 9, 1922 Daniel R. Chissinger May 1, 1923 to Sept 15, 1927 Roy A. Young Oct 4, 1927 to Aug 31, 1930 Eugene Meyer Sep 16, 1930 to May 10, 1933 Eugene R. Black May 19, 1933 to Aug 15, 1934 Marriner S. Eccles Nov 15, 1934 to Jan 31, 1948 Thomas B. McCabe Apr 15, 1948 to Mar 31, 1951 William McChesney Martin, Jr. Apr 2, 1951 to Jan 31, 1970 Arthur F. Burns Feb 1, 1970 to Jan 31, 1978 G. William Miller Mar 8, 1978 to Aug 6, 1979 Paul A. Volcker Aug 6, 1979 to Aug 1987
