(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Mike Dolan

LONDON, June 24 (Reuters) - New Federal Reserve Chair Kevin

Warsh is unlikely to differ much from the late Alan Greenspan on

how the central bank should deal with financial asset bubbles -

and that legacy offers little comfort to anyone.

During his almost two decades leading the Fed, Greenspan -

who died on Monday at the age of 100 - routinely insisted the

central bank should not try to deflate financial market bubbles

in advance. Instead, it should simply mop up the mess whenever

one bursts.

His rationale hinged on the assumption that the Fed could

never be certain what was a bubble and what was a structural

investment boom. Attempting to second-guess markets could cause

unnecessary economic damage or distortions, and distract the

central bank from its congressional mandates on prices and jobs.

But that approach saw Greenspan preside over two of the

biggest bubbles in modern history: the dotcom boom and bust at

the turn of the millennium, and a larger, more damaging credit

bubble that burst in 2007/2008. That second collapse wreaked

global economic havoc for years, and its political implications

are still being felt.

Some, including Warsh, defend the Fed's unwillingness to

rein in the parabolic rise of often loss-making internet stocks

in the late 1990s. They argue it allowed a

productivity-enhancing tech transformation to proceed, and that

deep Fed easing after the market collapsed limited the economic

fallout.

However, there are fewer apologists for the housing,

mortgage and credit boom that followed that sharp easing. Many

also argue the Fed's slow, predictable rebuilding of interest

rates encouraged that boom.A brutal recession ensued, followed

by more than a decade of debt repair, slow growth, monetary

policy and wealth distortions, and political upheaval.

Even if the Fed was not solely responsible for lax

regulation and banking sector incompetence that contributed to

that bust, it did little to lean against it in advance. Mopping

it up after the fact eventually worked, but over a long period

and at great cost to the Treasury. It also required the

extraordinary Fed balance sheet expansion that Warsh now thinks

was a mistake.

Was it worth it in the end? Greenspan himselfacknowledged

his mistake was an over-reliance on the self-interest of

commercial bankers not to let their firms blow up.

But would more active monetary policy have done better in

cooling either bubble before it burst?

"If the postmortem of recent monetary policy shows that the

results of addressing the bubble only after it bursts are

unsatisfactory, we would be left with less-appealing choices for

the future," Greenspan said in a speech in 2002. "In that case,

finding ways to identify bubbles and to contain their progress

would be desirable, though history cautions that prospects for

success appear slim."

IGNORE, THEN MOP UP

Warsh is assumed to share Greenspan's reluctance to prick

bubbles in advance, though he has not addressed the question

directly. His remarks have focused more on extolling the virtues

of allowing tech investment booms to run their course, rather

than reining them in.

And his view on asset prices tends to dwell more on his

belief that the Fed's balance sheet expansion since 2008

over-inflated assets like stocks and bonds - assets that about

half of Americans don't own.

A bigger concern for many investors is that Warsh may be

more symmetrical in his approach to market excesses than his

central banking "role model." That could mean keeping the Fed

clear of both wild market run-ups and crashes - effectively

removing the presumed "Greenspan put" - or at least stalling if

that required extraordinary balance sheet intervention.

Fasten your seatbelts if that's true.

Whether you take the view of Warsh, Greenspan or former Fed

Chair Ben Bernanke - who introduced bond buying and balance

sheet expansion to avert a depression in 2008 - it still leaves

us with the prospect that the Fed will allow a bubble to blow

regardless.

That brings us back to the market parlor guessing game of the

past few years: are we in bubble territory, driven by the AI

explosion? The debate is well documented and inconclusive, split

between those who say the spending and transformation are real

and those who say valuations are overcooked and mispriced.

If it proves to be a bubble - and U.S. chip stock indexes

have doubled so far this year and quintupled over the

past four - there is a reasonable question of whether the Fed is

still deliberately missing the wider economic, price and

financial stability issues that may be brewing.

Should it simply assume everything's fine and mop it up

after if it's not?

One interesting vignette from the other side of the world

this week offers another reason why central banks maybe should

not stand so aloof from market excesses. Perhaps they should

treatthem more like any other incoming economic data.

South Korea's chip-heavy Kospi index has tracked a

similar trajectory to the SOX. There are reports that local

households are ploughing windfall profits from outsized stock

gains back into an already overheated property market.

Are similar windfall profits from U.S. tech gains finding

their way into other parts of an already stretched U.S. economy?

And should that remain irrelevant to Fed calculations?

With U.S. inflation running well above target, the rate rise

now priced for later this year may be the least the Fed can do

to steady the ship.

(The opinions expressed here are those of Mike Dolan, a

columnist for Reuters.)

Enjoying this column? Check out Reuters Open Interest

(ROI), your essential new source for global financial

commentary.

Follow ROI on LinkedIn, and X.

And listen to the Morning Bid daily podcast on Apple, Spotify,

or the Reuters app. Subscribe to hear Reuters journalists

discuss the biggest news in markets and finance seven days a

week.