Alan Greenspan, dented American idol: Bernd Debusmann

Bernd Debusmann is a Reuters columnist. The opinions expressed are his own.

By Bernd Debusmann

WASHINGTON (Reuters) - At the height of Alan Greenspan's fame, a Washington magazine portrayed him on its cover as a Buddha figure, clad in a purple robe, sitting in the Lotus position before adoring worshippers. "The Cult of Greenspan," said the headline. Inside, the story provided riveting detail of the cult.

For example: A software program called "the Talmud of the Federal Reserve" which translates every Greenspan sentence into a predicted market reaction. A room at a Wall Street firm turned into a Greenspan shrine, featuring quotations from 30 of his speeches under a sign that reads "Greenspan's Teachings." On a trader's desk, a small rock carved into a Greenspan profile. A roped-off red leather chair where he once sat.

The March 30, 1998, issue of the magazine, The New Republic, has become a collector's item. The names of Wall Street houses in the article were invented, the cult fictitious, the author disgraced, the story purged from databases. But it sounded so plausible at a time of exuberant Greenspan adoration, the article was not questioned for many weeks.

A decade later, the U.S. economy is ailing and has begun to infect the rest of the world. In the hunt for a scapegoat - standard operating procedure in Washington - many fingers point at Greenspan and critics say his 18-year leadership of the U.S. Federal Reserve led to today's troubles in the housing markets.

Instead of the fawning praise heaped on Greenspan when the economy was booming, there are now websites portraying him in dark colors. One site is called The Mess That Greenspan Made, another Greenspan's Body Count. Greenspan's memoirs, The Age of Turbulence, prompted hedge fund manager William Fleckenstein to write a book entitled Greenspan's Bubbles, the Age of Ignorance at the Federal Reserve. It's in its fourth printing.

America's present problems go deeper than the housing market and Greenspan, who denies responsibility, is not alone in having helped create what critics call the shadow financial system. It runs on private, out-of-sight transactions involving complex financial instruments that account for more money than the combined value of stocks and bonds traded on transparent markets.

A major milestone on the road to "what is fast becoming the worst financial calamity since the Great Depression," in the words of Morgan Stanley's Stephen Roach, was the Commodity Futures Modernization Act (CFMA) of 2000. The way it was written, introduced and passed speaks volumes about the Washington intersection between politics, finance, and lobbyists.