Jan 1, 2006 12:00 PM

, By Michael E. Lewitt, president, Harch Capital Management, Boca Raton, Fla.

By Michael E. Lewitt, president, Harch Capital Management, Boca Raton, Fla.

It remains to be seen whether anybody was playing a cosmic joke when Hurricane Wilma was tearing South Florida apart at the same time that President Bush was appointing Ben S. Bernanke to succeed Alan Greenspan as chairman of the Federal Reserve. At the end of January, Bernanke will replace a living legend who has lorded over the financial markets since 1987. This appointment is every bit as important for the American people as the Supreme Court appointments that ignited so much controversy during the second half of 2005.

Many presume that Bernanke, a former Princeton University economics professor, will follow the same policies as his predecessor, the now lionized Greenspan. But if memory serves correctly, Bernanke is the same economist who once suggested that the Federal Reserve could simply drop dollar bills out of helicopters to battle deflation. While demonstrating a greater sense of humor than his predecessor (not a particularly difficult accomplishment), Bernanke's comment also suggests that the new chairman may be even more inclined than Greenspan to intervene when the financial markets seize up. Some observers would consider this a good practice. There are many — myself included — who worry about the increasing level of moral hazard that such interventions introduce into the markets. Among the legacies that Greenspan leaves behind is the “Greenspan put,” that is to say, the belief that the Federal Reserve will rescue the market from disasters of its own making (remember the Long Term Capital Management crisis). Were the market to adopt a belief in a “Bernanke put,” all bets could be off, as the level of risk-taking is already uncomfortably high. Greenspan leaves behind a series of gargantuan imbalances — record current account and budget deficits, unsustainable consumer and corporate debt levels — that threaten global economic harmony. Will Greenspan's sins haunt Bernanke's term as central bank president? That is one of the key investment questions for 2006.