Bear rescue was job for Treasury, not Fed: Greenspan

Former Federal Reserve chairman Alan Greenspan speaks at the International Financial Corporation in Washington October 21, 2007.

WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan on Thursday said the government had no choice other than to broker the emergency sale of failing investment bank Bear Stearns, but the Treasury Department, not the Fed, should have backed the sale.

"That is a fiscal policy operation -- essentially something that should have been set up in the Treasury Department," Greenspan said in an interview on CNBC television.

"What we should not do is have the central bank involved in its balance sheet," he said. "Because that balance sheet is the creator of the monetary base and if you allow major fluctuations in that base as a result of other-than-monetary-policy reasons, I think you're taking undue risks with the notion of the stability of the financial system and very specifically the Fed's control of inflation," he added.

(Reporting by Mark Felsenthal; Editing by Dan Grebler)