Indeed, there's some possibility that the decision to raise interest rates by the time a bubble is firmly established may be counterproductive--John Kenneth Galbraith chronicles how the attempt to raise the price of margin loans in the late 1920s simply attracted more European money into the trade. If the price of stocks or houses is rising by double digits every year, raising the interest rate from 6 to 8 percent doesn't much dim the mania, but it does make lending into it more lucrative.

But also, the price of credit is not merely the interest rate--it's also the availability. Mortgage interest rates are low right now, but the credit score required to get one of these low priced loans is much higher than it used to be. That means that the price of loans has increased for alll but the most creditworthy. For those with the lowest credit scores, it approaches infinity.

We know for a fact that American markets were flooded with foreign loans in the early part of the decade--the current account deficit marched upwards when rates were low, and when they were high. The price of loans fell in both interest rate and availability terms. By that time, the house price increases that were already well established--the Case-Shiller 10 city index shows home appreciation reaching 10% a year in the late 1990s, with only a mild dip after 9/11. In those circumstances, it's hard to see how he could have stopped this by fiddling with interest rates. Perhaps he might have managed it had he jammed interest rates up to somewhere between 8-10%. But the result would have been a recession like the early 1980s--the one with the double-digit unemployment levels that we now fear we may repeat. Assuming that he had succeeded in averting the worst of the runup, most of us would now remember Alan Greenspan as the lunatic who threw millions out of work in order to pop an imaginary housing bubble.

Greenspan might have had more success with changes in the mortgage origination rules. But his power in this area was much more limited--America's fractured system of bank regulation, which desperately needs reform, has six different agencies that oversee banks. This patchwork affords quite a few opportunities for regulatory arbitrage (remember the Savings and Loan crisis?), which leave it an open question whether Greenspan could have succeeded in cracking down on loose lending standards.

A few weeks ago, I was talking to a well-respected journalist who doesn't cover financial matters. She was pushing me for the culprit behind this mess, and was unsatisfied when I pointed out that there were a lot of good reasons to make most of these bad decisions. Ultimately she cried in frustration, "but somebody must have done it!" This is how we approach the problem: we want villains, guilt, punishment. But when systems fail, they usually fail systemically. If one person, even Alan Greenspan, could bring down the entire edifice, then we'd be in massive trouble, so we should be grateful that it isn't the case.