Feb. 9 (Bloomberg) -- He has been off the government payroll for barely a week, and he was right back in the thick of things.

Former Federal Reserve Chairman Alan Greenspan (emphasis on ``former'') was back to his old tricks of moving financial markets yesterday, as word of his comments at a private dinner the previous evening leaked out.

At a Tuesday night gathering hosted by Lehman Brothers Holdings Inc. for a handful of key clients, including some of the largest hedge funds, Greenspan held court on the economy and interest rates, subjects that have been his obsession for half a century.

According to people who know people who know people who were there, Greenspan said that the changes wrought by globalization and the effects -- low long-term interest rates -- are a challenge to the Fed, necessitating more increases in short-term interest rates than are currently reflected in market prices.

``What a scam,'' said Bill Fleckenstein, president of Fleckenstein Capital in Seattle. ``It's influence peddling at its finest.''

Lehman's Patsy

To be fair to Greenspan, it's not his fault Lehman submitted the first (or highest) bid for his services, then turned around and used him as a patsy to make money. (I can only speculate that the dinner attendees sold short-term Treasuries, anticipating the effect of Greenspan's comments.) His timing may have been poor, but you can't blame him for wanting to capitalize on his name and ring up the cash register after earning a civil servant's salary ($180,100 in 2005). Based on the experience of his former colleague, Wayne Angell, Greenspan has got to realize the half-life of a Fed governor can be short.

What accounts for Greenspan's ability to move the markets?

``We're accustomed to the insights of government officials being authoritative,'' said Neal Soss, chief economist at Credit Suisse. ``Greenspan's comments may be wise, but they aren't actionable anymore.''

You'd never know it from the chatter his comments generated in the marketplace and the reaction in the bond market. The implied yield on interest-rate futures contracts that gear off expectations of Fed policy edged higher, and two-year Treasury note yields rose 3 basis points.

Spirit of the Law

Greenspan didn't violate any laws or Fed regulations when he talked to Lehman's clients.

``Board members who complete their term may meet with and speak to groups without restriction, provided they reveal no confidential information,'' a Fed spokesman said.

The only other prohibition is representing another party (lobbying) before the Fed for a year after departing.

So Greenspan was well within the letter of the law in talking to clients. What about the spirit? Ben Bernanke, Greenspan's successor, hasn't organized his pencil drawer yet, and Greenspan is making noises that have implications for monetary policy.

At minimum, Greenspan evinced bad judgment by not letting some time pass before reasserting himself. His refusal to cede the limelight gracefully to his eminently qualified successor left a bad taste in people's mouths, many of whom refused to comment for the record. (Is it fear of reprisal, even without the force of the Fed behind him?)

Alan's Choice

Unlike other Fed governors, who honored the convention of not attending the final policy meeting before their departure, ``Greenspan attended the last meeting and dictated the vote,'' said Joe Carson, director of economic research at Alliance Bernstein.

In other words, his comments eight days after the last meeting reflect the Fed's current stance, which until Jan. 31 was Greenspan's stance. So who can blame traders and investors for assuming A equals B?

Greenspan reportedly commented at the Lehman dinner on the housing market (slowing but the effects won't be obvious for another six months); the consumer (retail and auto sales are surprisingly strong); and inflation (contained thanks to the effects of globalization).

It was his comments on the likely future course of interest rates that will tarnish his legacy as ``the greatest central banker who ever lived,'' an accolade conferred upon him at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming, last August.

Greenspan's choice exposed his real agenda all these years, for those who haven't been able to see it: the cult of his own personality at the expense of the institution.

``He's addicted to power,'' Fleckenstein said. ``If there is a silver lining in all of this, it's that the more he opens his mouth, the sooner he will be discredited.''

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

Last Updated: February 9, 2006 00:08 EST