Robert Novak

That's where the absence of McDonough the enforcer -- or even a reasonable facsimile -- counted. McDonough often stiffened Greenspan's spine in standing up to the Fed's bureaucracy. Although the presidency of the New York Fed is traditionally the second most powerful position in the central bank, no permanent successor to McDonough has been named. A relatively inexperienced board of governors and Greenspan appear to have been rolled over by staffers.

Disappointment among investors was reflected in a quick drop of 100 points at the New York Stock Exchange. More worrisome, however, was its inverted impact on interest rates. The 3.24 percent rate on 10-year bonds soared into the 3.5-3.6 percent range. Thus, a cut of 25 basis points in short-term rates translated into a 25-basis point increase in long-term rates. That is the worst outcome for a central bank in any country at any time -- "an absolute fiasco" in the words of one ex-Fed official.

One former Fed governor called this "the worst single performance that Alan Greenspan has ever had." Former Governor Wayne Angel told me it would be "very, very costly." Yet, as usual, politicians at both ends of Pennsylvania Avenue were silent, seemingly oblivious to what was happening in the Federal Reserve's marble palace a few blocks away.

The consequences could be shattering for George W. Bush. Old aides of his father still contend that the senior Bush's chances for re-election were doomed when Greenspan and the Fed tightened money. A dozen years later, the Greenspan-led Fed may have guaranteed more slow growth and job losses. There is hardly worse news for a president seeking re-election.

Robert Novak

Robert Novak (1931-2009) was a syndicated columnist and editor of the Evans-Novak Political Report.

©Creators Syndicate