Alan Greenspan, the former Chairman of the US Federal Reserve, has come under the most sustained attack to date for his role in America's mortgage meltdown.

When he stepped down from the Fed in February last year after 18 years as Chairman, Mr Greenspan was hailed as one of the best central bankers, who presided over one of the biggest economic booms in history.

But an increasing number of critics are now questioning Mr Greenspan's achievements, arguing that he fuelled the housing bubble by reducing the US interest rate from 3.5 per cent to 1percent in the aftermath of the September 11 terrorist attacks in 2001.

He is criticised for not clamping down on high-risk “sub-prime” mortgage lending, despite warnings that loans were made on terms which borrowers could not afford once the initial “teaser” rate had expired.

Sheila C. Bair, a former senior Treasury official and now chairman of the Federal Deposit Insurance Corporation, an agency created by Congress to insure deposits and supervise financial institutions, told The New York Times: “Hindsight is always 20-20, but it is clear that the Fed should have acted earlier. Financial innovation is great, but you have to have some basic rules. One of the basic rules is that a borrower should have the ability to repay.”

Martin Eakes, chief executive of the Centre for Responsible Lending, which protects consumers against predatory lending, added: “The Federal Reserve could have stopped this problem dead in its tracks. If it had done its job, we would not have a foreclosure crisis in virtually every community across America.”

Mr Greenspan defended his actions, saying that the Fed was not equipped to investigate mortgage lending and that it was not to blame for the housing bubble and bust: “I got the impression that there were a lot of very questionable practices going on. The problem has always been, what basically does the law mean when it says deceptive and unfair practices... It becomes essentially an enforcement action, and the question is, who are the best enforcers?

“A large enough share of these cases are fraud, and those are areas that I don't think accountants are best able to handle.”

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