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An interesting analysis from Institutional Economics:

Alan Greenspan�s record is the subject of a feature in the AFR Magazine by Peter Hartcher. The article is mostly a recycling of some increasingly tired Greenspan anecdotes and factoids. But it also argues that Greenspan is responsible for America�s most recent boom and bust. The article implies that Greenspan kept policy too easy for too long, in contrast to the view that he tightened policy too aggressively, too late. Of course, these views could be reconciled by arguing that monetary policy was systematically mistimed.

There is a much bigger story here, one that most journalists miss because of their preoccupation with personalities at the expense of processes: the US operates an almost entirely discretionary monetary policy regime, unconstrained by a formal inflation target or other policy rule. But there is no suggestion amongst all the criticism of Greenspan that perhaps US monetary policy should be made subject to the rule of law. Instead, Hartcher effectively argues for an even more discretionary and activist Fed that would target asset prices:

But probably the most important reason for Greenspan's ability to drive into a $US6.5 trillion car crash and walk away unscathed is that when he erred, it was an error within the prevailing orthodoxy. The economic orthodoxy said that the only danger that a central bank should confront with restrictive monetary policy - higher interest rates - was inflation. And this refers to inflation in the commonly understood sense of inflation in consumer prices. The US was not suffering an inflationary outbreak, so, according to the prevailing wisdom, there was no need to act. There are early signs the orthodoxy is now being rethought.

The view that asset prices should be a target of policy is gaining ground, partly because of a misinterpretation of the work of the behavioural finance school, which confuses individual irrationality with informational inefficiency. But the view that any single authority or personality could determine an appropriate level or growth rate for asset prices effectively revives the wrong side of socialist-calculation debate from the 1930s. A rule-bound nominal anchor, in conjunction with other rules designed to promote market efficiency and integrity, would minimise the risk that monetary policy might destabilise asset prices. An activist monetary policy that sought to target asset prices would be a recipe for disaster.