ROBERT RUBIN, former US Treasury Secretary and one of the most respected figures in the financial world, has launched a robust defence of the policies followed by Alan Greenspan, Fed Chairman, during the 1990s stock market boom.

Mr Rubin, Treasury Secretary between 1995 and 1999 and now a senior executive at Citigroup, said that the Fed was right not to opt for sharp increases in interest rates in an attempt to head off a stock market bubble.

Nor would it have been sensible for the Fed Chairman to try to talk down share prices, Mr Rubin argues in his newly published memoirs, In an Uncertain World: Tough Choices from Wall Street to Washington.

Mr Rubin says that he himself had serious reservations about the share price boom years before the dot-com crash in 2000, and that he continues to worry about the short termism of the US market.

In a detailed account of his time as co-chairman of Goldman Sachs, head of the White House’s National Economic Council (NEC), US Treasury Secretary and now senior adviser to Citigroup, Mr Rubin sets out his view of the successive financial crises of the late 1990s that culminated in the dot-com slump.

In revealing his close working relationship with Larry Summers, deputy US Treasury Secretary, and Mr Greenspan, Mr Rubin discloses that the three of them began to discuss their concerns about the stock market as far back as 1995.

“My personal alarm bells started ringing thousands of Dow points below the peak. Alan, Larry and I talked about this issue as the Dow broke through 5,000 (in late 1995), 6,000, 7,000, 8,000 and 9,000.”

Mr Rubin says that he thinks he was right to keep his stock market views private. With the benefit of hindsight, there was little that Fed or Treasury officials could have done to head off the bubble, he says.

“Could the Treasury or the Fed have done something to moderate the stock market excesses that seemed to be developing and that could endanger the economy? Alan, Larry and I discussed this frequently.

“Though I felt strongly that the markets had gone to excess, I couldn’t be sure I was right and the market wrong. Secondly, it was not clear that what we said would have had any real effect. Finally, our comments could have precipitated a sudden unravelling rather than an orderly decline.”

Neither would it have been right for the Fed to try to snuff out the market boom by raising rates, Mr Rubin says.

“I strongly share Alan’s view that monetary policy should be directed towards the economy, not the stock market, both because the Fed is no more able to judge whether markets are too high, too low or just right than anyone else, and because Fed actions driven by markets might be at variance with the best policy for the economy.”

The memoirs reveal the admiration that Mr Rubin, a lifelong Democrat, has for the Republican Mr Greenspan, who is described as a man “with an exceedingly good and understated wit”.