Second, the Fed's easy credit didn't cause the housing bubble because home prices are affected by long-term mortgage rates, not the short-term rates that the Fed influences. From early 2001 to June 2003, the Fed cut the overnight federal funds rate from 6.5 to 1 percent. The idea was to prevent a brutal recession following the "tech bubble" -- a policy Greenspan still supports. The trouble arose when the Fed started raising the federal funds rate in mid-2004 and mortgage rates didn't follow, as they usually did. What unexpectedly kept rates down, Greenspan says, were huge flows of foreign money, generated partially by trade surpluses, into U.S. bonds and mortgages.

Greenspan is in part contrite. He admits to trusting private markets too much, as he had in previous congressional testimony. He concedes lapses in regulation. But mainly, he pleads innocent and makes three arguments.

It was not the end of the Cold War, as Greenspan asserts, that triggered the economic boom. It was the Fed's defeat of double-digit inflation in the early 1980s. Since the late 1960s, high inflation had destabilized the economy. Once it fell -- from 14 percent in 1980 to 3 percent in 1983 -- interest rates slowly dropped.

Greenspan's complicity in the financial crisis stemmed from succeeding too much, not doing too little. Recessions were infrequent and mild. The 1987 stock market crash, the 1997-98 Asian financial crisis and the burst "tech bubble" did not lead to deep slumps. The notion spread that the Fed could counteract almost any economic upset. Greenspan, once a critic of "fine-tuning" the business cycle, effectively became a convert. The world seemed less risky. The problem of "moral hazard" -- meaning that if people think they're insulated from risk, they'll take more chances -- applied not just to banks but to all of society: bankers, regulators, economists, ordinary borrowers and consumers.

"We had been lulled into a state of complacency," Greenspan writes in passing, failing to draw the full implication. Which is: Too much economic success creates the seeds of its undoing. Extended prosperity bred overconfidence that led to self-defeating behavior.