Greenspan guardedly optimistic

By George Hager
USA Today

WASHINGTON — In anxiously awaited testimony yesterday, Federal Reserve Chairman Alan Greenspan was guardedly optimistic about the U.S. economy, declaring that the "fundamentals are in place for a return to sustained healthy growth," but that "considerable uncertainties" still threaten the rebound.

With markets on edge and investors deeply worried about new corporate scandals, Greenspan devoted much of his energy to a lengthy and at times impassioned attack on dishonest corporate executives.

He said "an infectious greed" had contaminated the business community in the late 1990s, as one executive after another manipulated earnings or resorted to fraudulent accounting to take advantage of soaring stock prices.

He said his own experience on corporate boards taught him that lax corporate governance is "largely a symptom of a failed CEO."

And while he said he couldn't see how Congress could "effectively legislate morality or character," he told senators that "even a small increase in the likelihood of large, possibly criminal penalties for egregious behavior of CEOs can have profoundly important effects" on corporate behavior.

As he has in recent months, Greenspan signaled that the Fed is in no hurry to raise its benchmark short-term interest rate from its 40-year low. He said subdued inflation and an "uncertain" outlook for the recovery give the Fed time to wait for "evidence" that the forces holding back the rebound have dissipated.

Greenspan said little about the ongoing declines in the stock market, except to note that the markets had been "notably skittish" and that the large drop in prices would probably restrain consumer spending.