Why did Alan Greenspan’s reputation collapse after 2005 housing bubble burst?

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Alan Greenspan's Reputation Declined Following the 2005 Housing Bubble Burst Due to Criticisms of His Policies and Regulatory Stance

Alan Greenspan's once-lauded reputation suffered a significant decline after the 2005 housing bubble burst, which severely impacted both his standing and the global economy. Critics pointed to his policies as having fueled a series of asset price bubbles, thereby setting the stage for the 2007-2009 financial crisis. A key area of contention was his strong advocacy for minimal regulation of financial markets, with critics arguing that this lenient approach enabled banks to engage in risky housing market investments.
Criticism of Policies Fueling Asset Bubbles

Greenspan's tenure as Federal Reserve chairman from August 1987 to January 2006 was initially marked by significant economic expansion, including the second-longest period of growth in US history from March 1991 to March 2001. During this time, his decision to allow the economy to grow without aggressively raising interest rates, despite inflation concerns that did not materialize, contributed to a period of prosperity. This era was characterized by his accurate assessment that a mid-1990s productivity surge would contain inflation, a judgment that remains a touchstone for policymakers. However, following the bursting of the housing bubble, his monetary policy acumen came under intense scrutiny, with critics asserting that his actions had fostered asset price bubbles and contributed to the subsequent financial crisis.
Hands-Off Regulatory Approach and Bank Risk-Taking

A significant point of criticism against Greenspan was his strong support for a lightly regulated financial market. This "hands-off" attitude, as described by detractors, allowed financial institutions to make substantial and ultimately disastrous bets on the housing market. Greenspan himself later acknowledged being "shocked" by the failure of his assumption that bankers' self-interest would prevent them from taking actions that jeopardized their own institutions' survival. He expressed this disbelief in a 2008 appearance before the House of Representatives Committee on Oversight and Government Reform, stating, "Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief."
Shift in Federal Reserve Policy Post-Greenspan

Following Greenspan's departure from the Federal Reserve in January 2006, his successors gradually steered the institution in a new direction. This involved the development and implementation of financial crisis response tools designed to address issues that Greenspan had not previously encountered, such as the adoption of zero interest rates. The Federal Reserve also transitioned away from its previously opaque communication style towards a more transparent approach. This shift included more frequent public speeches by Fed officials, the establishment of a clear inflation target, and the institution of regular press conferences.

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Why did Alan Greenspan’s reputation collapse after 2005 housing bubble burst?

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