April 9 (Bloomberg) -- Former Federal Reserve Chairmen Paul Volcker and Alan Greenspan present an interesting study in contrasts.

Volcker is tall; Greenspan isn't. Volcker is a man of few words; Greenspan won't shut up. Volcker retired as Fed chair and avoided the limelight; Greenspan is doing everything possible to make sure the light shines on him.

The problem for Greenspan is that the spotlight on him is also illuminating detritus on the economy's shoreline now that the tide of easy money has gone out. (Wait, easy money is back!) Greenspan's curriculum vitae includes two asset bubbles (one in Internet and technology stocks in the late 1990s, another in residential real estate), a pair of banking crises, a boatload of fraudulent lending he chose to ignore, and a household savings rate of zero.

What really separates the two men, however, is the legacy issue. Volcker is content to let his record speak for itself: He inherited inflation of almost 15 percent and bequeathed a rate of 4 percent to posterity. It took two recessions to get there, but he did the heavy lifting on inflation.

Greenspan is desperate to deflect the blame for a credit crisis he called ``the most wrenching'' in 50 years. He can write his autobiography, which he did last year, but he can't write his epitaph. We, the public, will do that.

Rewriting History

He's doing his best to help. The ``greatest central banker who ever lived,'' in the estimation of Princeton University economist Alan Blinder -- who, as a Fed governor in the mid- 1990s, chafed under Greenspan's leadership -- is being subjected to almost daily criticism from a jury of his peers. It's coming quicker than he can produce rebuttals, although he's doing yeoman's work.

He wrote an op-ed for the Financial Times on March 18 (``We will never have a perfect model of risk'') that generated such an outpouring of criticism he had to write a follow-up.

Alice Rivlin, who served as a Fed governor under Greenspan, was one of those who responded to Greenspan's misplaced assertion that econometric and risk models were to blame.

``We will never have a perfect model of risk in a complex economy,'' she wrote. ``But the culprit was not imperfect models. It was a failure to ask common sense questions,'' such as ``will housing prices keep going up forever?''

Nothing Greenspan says can alter the obvious: The Fed kept short-term rates too low for too long. No matter what metric you use, a reasonable person could not possibly come to any other conclusion.

Exhibit One

Let's look at what some of those metrics were screaming at mid-year 2004, when the funds rate was still at 1 percent and Greenspan was concerned about deflation:

-- The yield curve was vertical. The spread between the funds rate and 10-year Treasury topped out at 380 basis points, a sign of a highly stimulative monetary policy.

-- The real federal funds rate was negative for almost three years in 2002 to 2005. The last time the inflation-adjusted overnight rate was negative for such an extended period of time was the mid-1970s. 'Nuf said.

-- The spread between the nominal funds rate (a proxy for the cost of borrowing) and nominal gross domestic product (a proxy for the economy's return) reached 600 basis points, a gap last seen in those fabulous '70s.

-- Commodity prices were soaring; the dollar was sinking. Neither is consistent with deflation.

Elsewhere, Greenspan has argued that the housing bubble was a global, not a U.S., phenomenon, driven by low long-term rates, the result of a global savings glut.

Raise Short Rates

``If he thought long rates were too low, why not try to push them up by raising short rates?'' asked Paul Kasriel, chief economist at the Northern Trust Corp. in Chicago. Bond yields may ``dance to a different drummer,'' he said, ``but they are affected to some degree by fed funds rate expectations.''

If Kasriel agrees with Greenspan on anything, it's in his rejection of the notion that free markets are inherently unstable and in need of regulation.

``We don't have a true free market,'' he said. ``The Fed sets an important price'' -- the interbank lending rate -- providing all the reserves the banking system demands at that price. ``It would be an accident if the Fed were to set that price at a market-clearing level,'' Kasriel said.

Just as in the aftermath of the Great Depression, Congress is gearing up to pass new regulations to prevent the current credit crisis from happening again.

``That will be Greenspan's legacy,'' Kasriel said.

As legacies go, that would be Greenspan's worst nightmare.

(Caroline Baum, author of ``Just What I Said,'' is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

Last Updated: April 9, 2008 00:01 EDT