Greenspan Feared Nuclear, Poison Attacks After 9/11 (Update2)

By Vivien Lou Chen

Sept. 17 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan feared a nuclear attack or poisoned reservoirs after Sept. 11, 2001, before he privately endorsed spending of $100 billion to revive the U.S. economy.

``I was particularly concerned about a weapon of mass destruction, possibly a nuclear device stolen from the Soviet arsenal during the chaos of the collapse of the U.S.S.R.,'' he wrote in his book, ``The Age of Turbulence: Adventures in a New World,'' published today by Penguin Press. ``I also contemplated the contamination of our reservoirs.''

Three weeks after the attacks that killed almost 3,000 people at the World Trade Center, the Pentagon and Pennsylvania, Greenspan concluded in a meeting with congressional leaders and White House economic adviser Lawrence Lindsey that a $100 billion package of fiscal stimulus ``seemed about right.''

``Anticipating a second terrorist attack was probably one of the worst predictions I ever made,'' Greenspan, 81, wrote.

Greenspan led the Fed for 18 years until January 2006 and was succeeded by Ben S. Bernanke, a former member of the central bank's board of governors.

The economy entered recession in March 2001 and was starting to emerge from the slump as interest-rate reductions and rising home prices left consumers with more money. The attacks jeopardized a rebound by undermining confidence. Consumer spending accounts for about two thirds of gross domestic product.

Kept Quiet

Greenspan said he was careful not to reveal his concern that terrorists would strike again.

``If I had fully expressed what I thought the probabilities were, I'd have scared the markets half to death,'' he wrote. ``What worried me was the fear such an attack would create, especially if there were additional attacks to come.''

On Sept. 14, Congress passed an initial emergency appropriation of $40 billion and authorized the use of force against anyone who had attacked the U.S.

Five days later at a meeting in the office of then House Speaker Dennis Hastert, Greenspan met with Lindsey and congressional leaders. There, Lindsey put forward the idea of a tax cut; he and others wanted to give the economy a $100 billion shot in the arm. Greenspan wasn't so sure and wanted to wait.

By the time they reconvened in Hastert's conference room on Oct. 3, Greenspan had made up his mind on the need for additional stimulus, he wrote.

`Offset the Damage'

``While I still expected more attacks, there was no way to know how devastating they might be or how to protect the economy in advance,'' the former Fed chief wrote. ``I told the group that we should take steps to offset the damage we could measure, and that it was indeed time for a constrained stimulus.''

Greenspan said he went home thinking he had merely reflected the consensus at the meeting, and was surprised to see press reports that credited him with forging the agreement. The spending package that finally emerged in March of the following year was too late, and little more than ``an embarrassing mix of pork-barrel projects,'' he wrote.

``I've never been entirely comfortable being cast as the person who calls the shots,'' he said. ``From my earliest days, I had viewed myself as an expert behind the scenes, an implementer of orders rather than the leader.''

Greenspan's book today was ranked No. 1 on the bestseller lists posted on the Web sites of Amazon.com Inc., Barnes & Noble Inc. and Borders Group Inc.

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net .

Last Updated: September 17, 2007 11:46 EDT

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