The timing is difficult to ignore. In the same week that Alan Greenspan died at the age of 100, markets found themselves asking a question he spent much of his career trying to avoid: what exactly should a central bank do when confronted with a potential asset bubble?
And this question is no longer academic. US chip stocks have doubled again this year. Artificial-intelligence spending forecasts continue to expand. Investors are assigning trillion-dollar valuations to companies whose most optimistic projections still reside years in the future. Economists, traders and academics remain divided over whether this represents a genuine technological revolution, speculative excess or some combination of the two. Yet the debate itself feels oddly familiar.
That, perhaps, is the first irony.
Greenspan’s name is permanently attached to one of the most famous warnings in financial history. His 1996 question about “irrational exuberance” entered the market lexicon almost immediately. The phrase became shorthand for speculative excess, overvaluation and investor mania. Yet the chairman who coined it spent much of the following decade arguing that central banks should do very little about such behaviour.
Greenspan’s reasoning was straightforward enough. Policymakers could not reliably distinguish a bubble from a genuine transformation. Attempting to suppress one might inadvertently destroy the other. Better, he argued, to focus on inflation and employment while cleaning up the damage after a crash if one occurred.
It sounds reasonable. It also sounds considerably less convincing when viewed through the rear-view mirror.
During Greenspan’s tenure, the Federal Reserve presided over the dotcom boom and bust. Shortly thereafter came the housing, mortgage and credit bubble that eventually exploded into the 2008 financial crisis. To be fair, no central banker single-handedly created either episode. Regulatory failures, banking excesses and investor behaviour all played their part. Yet it is difficult to argue that the strategy of ignoring bubbles and mopping up afterwards produced an especially reassuring result.
The clean-up itself became a defining feature of modern finance.
Markets gradually learned that severe disruptions would be met with lower rates, emergency liquidity and, eventually, large-scale asset purchases. The so-called Greenspan Put evolved into the Bernanke Put and later the Powell Put. Different chairmen employed different tools, but the underlying expectation remained remarkably consistent. If markets fell hard enough, the Federal Reserve would ultimately intervene.
Investors noticed.
One reason asset valuations have repeatedly stretched to extraordinary levels over the past quarter-century is that markets increasingly assumed there would be a safety net underneath them. Gains remained private. Losses became, at least partially, socialised through monetary intervention.
Whether that interpretation is entirely fair is almost beside the point. Markets believed it.
Which brings us to Kevin Warsh.
The new Fed chairman is widely viewed as intellectually closer to Greenspan than to Ben Bernanke. He has repeatedly praised the productive benefits of technological investment booms. Yet he has also been critical of the extraordinary balance-sheet expansion that followed the financial crisis and became a standard feature of modern crisis management.
That combination creates an intriguing possibility.
If Warsh shares Greenspan’s reluctance to identify or restrain bubbles in advance, while simultaneously questioning some of the tools used to clean up afterwards, what exactly happens if today’s AI boom eventually encounters trouble?
The question becomes even more relevant because the current debate increasingly resembles earlier episodes. Supporters of the AI rally point to genuine technological transformation, enormous productivity gains and potentially revolutionary applications. Critics point to valuations, speculative behaviour and capital spending projections that appear detached from economic reality.
Both sides may ultimately prove partially correct.
The dotcom era also transformed the economy. Many of its most ambitious promises eventually materialised. The internet changed almost everything. Yet the Nasdaq still collapsed nearly 80 percent along the way.
It seems technological revolutions and financial bubbles are not mutually exclusive concepts after all. And there’s enough history to suggest they often arrive together.
That is where Greenspan’s legacy becomes difficult to separate from today’s discussion.
His central argument was not that bubbles do not exist. It was that central banks are poorly equipped to identify them with sufficient confidence to justify intervention. The difficulty, of course, is that every bubble looks unique while it is inflating. The certainty tends to arrive later.
One almost wonders whether the Federal Reserve’s preferred strategy has become remarkably convenient. Ignore the bubble because it cannot be identified. Clean up the crash because it cannot be ignored. Then repeat the exercise when the next one arrives.
Perhaps that remains the least bad option. Greenspan himself acknowledged the dilemma. Policymakers who attempt to suppress speculative enthusiasm risk choking off genuine innovation. Few central bankers want responsibility for preventing the next technological breakthrough.
Yet the alternative raises its own questions.
If the Fed continues to stand aside during periods of obvious excess, should financial stability concerns play a larger role in monetary policy? Should asset prices be treated more like economic data and less like an inconvenient distraction? And if AI-related gains are already spilling into other parts of the economy, from private markets to property and consumer spending, can policymakers really claim such developments sit entirely outside their field of vision?
Those questions feel particularly relevant today because the AI debate is no longer confined to venture capitalists and technology executives. It increasingly shapes equity indices, corporate investment decisions, capital allocation and household wealth.
Perhaps the current boom will justify every expectation embedded within it. Perhaps future earnings will eventually catch up with present valuations. Perhaps today’s sceptics will look as misguided as those who underestimated the internet.
But in the week of Alan Greenspan’s passing, it is difficult not to notice the familiar contours of the debate. A transformative technology. Extraordinary valuations. A central bank reluctant to intervene. And a growing assumption that, should anything go wrong, someone will eventually arrive with a mop.
The question is whether the next chairman intends to bring one.
Copyright Business Recorder, 2026
The writer can be reached at [email protected]
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