In FED We Trust by David Wessel Page A

for which Greenspan got substantial blame. But even after that bubble burst, and a recession ensued, the Greenspan Fed managed to get the economy going again by aggressively cutting interest rates — and the United States avoided the misery that followed the bursting of a real estate and stock market bubble in Japan.
    Bush was right. Greenspan
was
a rock star — at least at that moment. He had steered the U.S. economy around the Asian financial crisis in 1998, two wars with Iraq, and the September 11 attacks. To economists, bond traders, and businessmen, he was a hero. “No one has yet credited Alan Greenspan with the fall of the Soviet Union or the rise of the Boston Red Sox, although both may come in time as the legend grows,” Princeton’s Alan Blinder, a former Fed vice chairman, and Ricardo Reis wrote in a 2005 evaluation of Greenspan that pronounced him “amazingly successful.” Volcker had been far from anonymous, but the proliferation of business cable TV channels and the arrival of the Internet turned Greenspan into a celebrity of far larger dimensions than the chief justice of the Supreme Court and the leaders of Congress — and with a far longer tenure and more credibility than the president himself.
    After he retired as chairman of the Fed, Greenspan kept laughing — all the way to the bank. With the help of Washington’s superagent (and lawyer) Robert Barnett, Greenspan landed a reported $8.5 million advance for his memoirs. The book,
The Age of Turbulence
, hit the bookstores in the fall of 2007, a year and a half after he retired, just as the Great Panic was gettingunder way. The title was apt for a book that looked back to the 1987 crash, the 1989 fall of the Berlin Wall, two U.S. wars with Iraq, the September 11 attacks, and the emergence of China and India as economic powers.
    But Greenspan had no idea how much more turbulence lurked just over the horizon, nor how his then sterling reputation would suffer — fairly and unfairly — in the aftermath.
W HAT D ID H E K NOW ? A ND W HEN D ID H E K NOW I T?
    The causes of the Great Panic are many, the list of culprits long. Ultimately, every check on the system failed to restrain the excess and greed or to correct for the myopia and delusional optimism. Blame the well-paid executives and directors of the nation’s financial institutions who gambled with their own companies and the U.S. economy. Blame the bankers’ much-ballyhooed approach to “risk management” that disguised rather than illuminated their risks. Blame the credit rating agencies that stamped “AAA” on securities that didn’t warrant that excellent status. Blame the chain of subprime mortgage makers — from unregulated mortgage brokers on the front lines to securitizers on Wall Street — who were driven by fat fees to make loans that were unwise for borrower and lender alike. Blame the supposedly sophisticated investors who bought risky, complex mortgage-linked securities they didn’t understand. Blame the home buyers with house lust that exceeded their paychecks. Blame the politicians who spent crucial years on the sidelines, swayed either by moneyed interests or excessive trust in markets. Blame the regulators who couldn’t or wouldn’t keep pace with the evolution of finance. Blame the reporters who failed to press questions or take cranky Cassandras seriously. Blame the Federal Reserve, which was, after all, created to head off financial panics. And, yes, blame Alan Greenspan, who during his nineteen years at the helm had created the Fed in his image.
    What did Greenspan and his Fed know, and when did they know it? What did they do — or fail to do — about it? What did the Fed miss? What could the Fed have done differently to prevent the Great Panic or, at least, to minimize the damage the panic did to the global economy? The answers fall into four categories.
THE GREENSPAN FED KEPT INTEREST RATES TOO LOW FOR TOO LONG
    In the wake of the bursting tech-stock bubble and