Irrational annoyance: there are many things to blame Alan Greenspan for. The '90s stock bubble isn't one of them.

• Author: Mufson, Steven
• Position: Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars - Book review

Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars By Peter Hartcher W.W. Norton, $24.95

The god of monetary policy has become a mere mortal. Long worshiped for guiding the U.S. economy to low inflation, fast growth and low unemployment during the booming 1990s, the retired Fed chief Alan Greenspan has been chided more recently for not letting the air out of the housing market and endorsing Bush's tax cuts while bemoaning the deficits that were their predictable consequence.

Now in a new book called Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars Peter Hartcher, the former Washington bureau chief for the Australian Financial Review, condemns Greenspan for the stock market crash of 2001. Greenspan's failure to take the exuberance out of "irrational exuberance," says Hartcher, had "dreadful consequences."

Contrary to traditional thinking, Hartcher asserts that it is (or ought to be) the job of the nation's central bank to put a stop to manias in asset markets, such as stocks or housing, even if other benchmarks of economic performance--such as inflation and growth--look balanced and healthy. And if that's so, isn't Greenspan responsible for failing to take action that would have spared many investors, preserved the retirement funds of hardworking Americans and prevented the economy from suffering a recession that threw many people out of their jobs?

The answer, I think, is mostly "no," but Hartcher makes an aggressive case to the contrary. The essence of his argument is this: Minutes of the Federal Open Market Committee meeting of Sept. 24, 1996, show that Lawrence Lindsey, then a committee member and later head of President George W. Bush's National Economic Council, asserted that there was a stock-market bubble and that the Fed should prick it. If left alone, the bubble could rival the overvalued markets in the United States in the 1920s or Japan in the 1980s. Greenspan appeared to agree about the state of the market. "I recognize that there is a stock market bubble problem at this point, and I agree with Gov. Lindsey that this is a problem that we should keep an eye on," the Fed chairman replied. He assured Lindsey that the Fed could increase margin requirements, further limiting the amount of money investors can borrow to buy stocks. "I guarantee that if you want to get rid of the bubble, whatever it is, that will do it," Greenspan said.

Just two and a half months later, on Dec. 5, Greenspan uttered the now famous...