Not until his speech on 08.26 did Mr. Greenspan spell out his intention to control the so-to-be significant escaping of air from the housing bubble.. He also is trying to fix his mishandling of the federal deficits - not that he was responsible for them so much as he signed off on their creation.

He mused that it was possible that the economy was flexible enough to handle the higher values that homes have been commanding, even if the wealth was unevenly shared with all homeowners and now has begun to exclude folks who were looking to buy for the first time. It was the same cheap money he provided banks who, flush with cash offered enticing financing to all corners of the home buying market which pushed those prices skward.

This type of market is, he said, was one that is based "periods of protracted periods of low risk premiums". That money and its liquidity and the resultant cost of its debt service were directly controlled by the Fed. Those mortgages in a very direct way, were funded by his monetary policy.

Most of what he seemed to congratulate himself for:

"We weathered a decline on October 19, 1987 of a fifth of the market value of U.S. equities with little evidence of subsequent macroeconomic stress--an episode that provided an early hint that adjustment dynamics might be changing. The credit crunch of the early 1990s and the bursting of the stock market bubble in 2000 were absorbed with the shallowest recessions in the post-World War II period. And the economic fallout from the tragic events of September 11, 2001, was limited by market forces, with severe economic weakness evident for only a few weeks. Most recently, the flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for crude oil and natural gas that we have experienced over the past two years."

But one item caught my eye and for the sake of fixed income investors, might be telling. Greenspan seemed to be concerned that investors are willing to accept lower rates of return for longer terms. While this might be fine if you are trying to promote global economic stability and in a way, he might think that would be a good idea, but it comes with problems He has warned against protectionism - his solution is better education of US students. So what is he afraid of?

Complacency. He fears that if and when caution enters into the investor mindset, the risk premiums are likely to rise. This he warns "lowers asset values and promotes the liquidation of debt" which we all know now has supported those higher prices.

So what about inflation? Although he did keep his speech focused on the historic aspects of inflation and his successes during his tenure, he was smart enough to acknowledge who deserved the credit.

" Federal Reserve under Paul Volcker's leadership starting in 1979 did the very heavy lifting against inflation." He did because he could see the target.