BOOK REVIEW: Greenspan's Bubbles: The Age of Ignorance at the Federal Reserveby William A Fleckenstein with Frederick Sheehan; McGraw-Hill; €15.

THIS BOOK is a scathing critique of Alan Greenspan's reign as chairman of the Fed (US Central Bank) from August 1987 to January 2006. It calls him "a serial bubble-blower" and "master of the United States' descent into financial turmoil". If this judgment is true, then Mr Greenspan must be blamed for the serious financial difficulties and current recessionary tendencies around the world.

This is a provocative conclusion, bearing in mind that for a large part of his career Mr Greenspan was regarded as a maestro by the media and by financial market participants.

By carefully sifting through his speeches and statements to Congressional Committees, the authors conclude that Mr Greenspan was often self-serving and inconsistent, and that he never admitted mistakes or learnt from them. Several specific charges are laid at his door, including a poor forecasting record when he was a private economic consultant and chairman of the President's Council of Economic Advisors. The charges become more serious in relation to the period after he took over as chairman of the Fed. His dealings with the stock market crash of 1987, the Savings and Loan crisis, and the fall of Long Term Capital Management are roundly criticised - but much worse was to follow.

It was the equity (dot.com) boom of the late 1990s, and the property boom that began more or less when equities collapsed in 2001, that represent the real failures of Mr Greenspan. The authors claim that he couldn't recognise the speculative and dangerous "bubble" nature of these booms and actually caused them, by keeping interest rates too low and by pumping money into the system.

There is little doubt that Mr Greenspan seemed more concerned about keeping economic growth going and keeping asset values from falling than he was about fighting inflation. This reversed the true central-banking instinct which Paul Volcker, his predecessor, possessed.

Quite early on in the equity bubble, Mr Greenspan made his famous speech about investors suffering from "irrational exuberance" and then, surprisingly, he did nothing about it, even when some tech stocks were rising by 500 per cent a day! At one point total market capitalisation reached 185 per cent of US GDP, compared with 85 per cent in 1929. The price/earnings ratio of the Nasdaq attained the unbelievable level of 200. People were buying high tech stocks that had no earnings record whatsoever. And still, Mr Greenspan was saying that it was very difficult to define an equity bubble.

Then he developed a strange way of justifying the madness that was occurring in the stock market. He endorsed an academic theory which said productivity was higher in the US than officially suggested. This indicated that tech stocks were not overvalued at all! It implied that inflation might be lower than the official measures; consequently interest rates could be kept fairly low without risk to price stability. These sentiments were certainly not those of a central banker.

Mr Greenspan also used Y2K as an excuse for pumping liquidity into the system. When the stock market crashed in 2001 the Fed cut interest rates 11 times, bringing them down to 1.75 per cent, and this began to feed into a new speculative bubble in the property sector.

Mr Greenspan was reluctant to admit to the bubble and ruled it out on the basis of limited turnover. By 2003 houses had risen in price by 60 per cent over the previous five years and equity release was fuelling consumer spending. Household and corporate debt rose to three times the value of GDP - one of the highest debt ratios in the world.

This seemed to be a time for tightening monetary policy but, instead, Mr Greenspan began to talk about the risks of deflation. The fear was that if inflation fell, like it had in Japan, consumers would wait until prices had fallen further. Postponing consumption could put the economy into recession. On the basis of this vague fear, interest rates were brought down to the amazingly low level of 1 per cent.

Incredibly, he welcomed the development of the sub-prime market because he was committed to financial innovation.

Since Mr Greenspan had a record of bailing out markets after they collapsed, the participants in the property market didn't have to worry. They all lived in a Goldilocks economy where the Fed would fight off the bear. Moral hazard had become endemic.

The authors' treatment of Mr Greenspan's record is a bit simplistic and selective. It concentrates on financial markets (and the fall of the dollar), and says little about economic growth and inflation. But even if half of what they say is correct, then Mr Greenspan contributed to considerable economic damage in the US and the world. The book does not deal with financial regulation, which was equally, if not more, culpable, and needs to be fundamentally reformed. The book does not explain why Mr Greenspan got it so wrong. It suggests that he didn't fully understand what was going on. The notion that, as a laissez-faire ideologue, he couldn't conceive of market imperfections, doesn't ring true either. There must be more to it than that.

Michael Casey is a former senior official at the Central Bank and a former member of the board of the International Monetary Fund.