"Deflation isn't just a topic of intellectual curiosity, it's happening," he said. "It's an uncertain world that's tipping toward deflation." To prepare for a price slump, Mr. Gross has bought so much government debt that Treasury bonds now make up more than half of his Pimco portfolio, compared to about a third at the end of March.

Alan Greenspan is getting a little anxious, too! On NBC's Meet the Press yesterday, he said the job market is doomed. "There's nothing out there that I can see which will alter the trend or the level of unemployment," he said. Mr. Greenspan's dark words followed some stormy ideas from the St. Louis Fed president. (Barney Frank, meanwhile, is more relaxed.)

Mr. Krugman is trying not to gloat.

Nationalizing major banks, temporarily at least, is a radical notion that today looks far more prudent than handing over hundreds of billions of additional dollars to the clowns and crooks who wrecked the financial system. Privatizing Social Security, or turning over another trillion dollars to the Wall Street geniuses whose reckless greed drove us into penury, no longer appears so alluring. Even a few repentant right-wingers -- notably including Alan Greenspan, the former "maestro" of money -- now gaze dolefully into the mirror and wonder where they went so wrong. (Here's a hint: the trouble began during those lonely evenings spent perusing the addled works of Ayn Rand.)

So as President Obama convened his "fiscal responsibility summit" and prepared to deliver his first budget, the voices of free-market fundamentalism were muted in Washington, if not on cable television. The anticipated onslaught against Social Security from those claiming to represent future generations did not materialize at the Obama summit - and neither did the presidential capitulation that liberals had feared. Instead, the White House wonks insisted on discussing the actual threat to America's future solvency - namely, the swelling price of health care for the retiring generation of baby boomers and its effect on Medicare and Medicaid.

The problem with these programs, which have done so much to improve the health of America's poor and elderly, is neither the size of the boomer cohort nor even their impending geezerhood. The problem is the rate of cost increase per beneficiary, according to a landmark study released two years ago by the Center on Budget and Policy Priorities (and described with admirable clarity by Ezra Klein on the American Prospect website on February 23).

Respected across the political spectrum for the accuracy and relevance of its data, that liberal think-tank happens to be the former professional home of Peter Orszag, the Obama Administration's budget director. The center's insights into federal spending will inform policy at the highest level - which means that reforming the way we finance and deliver medicine will be central to this government's fiscal planning. Although there are many other matters that must be addressed if we are ever to regain control of deficits when economic growth resumes -- from the abuse of tax shelters by the super-rich to the absurd rip-offs by military contractors -- the biggest money is in the health sector.

But how can we cope with rising costs when we have yet to achieve the basic national goal of providing universal coverage? Perhaps now Americans will look abroad and notice that other countries provide quality care to all of their citizens, spending less than half what we do and achieving better outcomes. During the sixty years since President Harry S Truman first proposed national health insurance in this country, governments of the left and right across Europe as well as in Canada and Japan have developed a variety of successful approaches.

In the coming decades those countries will be able to invest their resources in energy and education, while we try to figure out how to borrow enough to keep our hospitals open. What they all have in common is that they do not devote a huge proportion of their health spending to the profits of insurance companies - and they negotiate budgets with health providers, such as pharmaceutical companies.

The superior performance of these alternatives is at long last coming to the attention of the mainstream media, which has so long ignored it. Newsweek's Fareed Zakaria, for example, recently noted that "[Canada's] health-care system is cheaper than America's by far (accounting for 9.7 per cent of GDP, versus 15.2 per cent here), and yet does better on all major indexes." T.R.  Reid, the former Washington Post bureau chief in Tokyo and London who has also been heard on National Public Radio for many years, is dedicating his career to explaining why British and Japanese health care work better and cost less.

As always, Congress will resist change on behalf of the insurance and pharmaceutical lobbies, preferring to do nothing. But perhaps in the coming years, the public will realize that those politicians should be told to go do nothing somewhere else. 

A summarizing paragraph from the long story by legendary investigative reporter Wayne Barrett:

Basically, according to the article, Mr. Cuomo, now New York State attorney general, drove efforts by HUD to increase minority homeownership. His agency encouraged this by encouraging subprime lending. The subprime lending eventually led to the subprime crisis several years after Mr. Cuomo left HUD when the Clinton administration ended.

That's it, really: A place-holder Cabinet secretary who left office six years before the crisis started breaking is responsible because he wanted to increase minority homeownership. The rate-slashing Fed, predatory lenders, securities rating agencies, media cheerleaders, etc.--they're largely off the hook because it all started with Mario Cuomo's boy and his good intentions.

We don't buy it. If anything, Mr. Cuomo's effects on what was to come were wholly unintentional. Note the very last sentence of The Voice's massive story:

Check out this New York Times story from Tuesday by Abha Bhattarai on the origins of the current economic downturn. Two words: Green. Span.

Lending money to dubious risks is hardly something invented in the past 10 or 15 years. Until recently, however, the rule was that high risks paid high interest rates. The payday loan industry operates on that basis, as do the gangsters who lend to people gambling on sporting events. For that class of borrowers failure to pay may also entail knee-capping or finger-smashing.

Knee-capping, however, does not necessarily get a gangster/borrower his money back. Such lenders draw a line at proven deadbeats. They are denied loans.

Thus, in a crude way, the nether regions of the credit system have been self-regulating. It does not take government regulation for some people to figure out that if you cannot afford the interest, don’t borrow the money; or, conversely, if the applicant looks like a really bad risk, regardless of the interest, don’t make the loan. Proper assessment of risk ensures that the guys with the baseball bats, or the slightly more respectable payday lenders, do not suffer fatal financial bubbles.

In our case, the simple set of relationships obtaining in the netherworld of credit has been disrupted over the years. The first disruption, and least important, was setting price controls on money via the usury laws. Controls on the price of money—that is, interest—are easily evaded but they foster a climate of dishonesty, black marketeering and forms of bookkeeping that defeat transparency. It is surprising that Hillary Clinton, with her oft-boasted experience, did not understand what she was advocating when she came out in favor of putting a cap or price controls on mortgage interest rates.

The disruption of self-regulation in borrowing and lending in the upper world of finance begins with the government policy of promoting low interest rates. The rates were not forced down by promulgating price control rules but by making money cheap, by, in effect, printing a lot of it. The connection between high interest rates and high risk was broken. When self-regulation is working, only good risks get low rates; now everybody got them.

Both political parties were content. The business people backing the Republicans were having trouble counting the money, it was coming in so fast. The Democrats were seeing a jump in the standard of living of their lower-income constituents. In the past few years, low-interest, no-down-payment financing had come close to being a substitute for public or subsidized housing. The difference was, as few cared to say out loud, that sooner or later the new homeowners would have to pay for their nice new homes.

The old system of self-regulation roughly worked because of self-interest. Bankers did not want to get stung by making bad loans. The new system of low interest rates might have gone on working—sort of—if the self-regulatory arrangement had been buttressed or replaced by public regulation. But regulating is no fun and nobody wanted to do it, and so it did not get done.

Anyway, thanks to low interest and the Fed printing press, everybody was swimming in cheap money. In short order avarice coupled with idiotic optimism made businesspeople stop doing their job, which is to understand the risks of each and every transaction. Instead, they proceeded apace, believing that higher prices would cover any problems.

The higher prices depended on the Fed keeping the country awash with money so that mortgages could be kept current by refinancing houses adjudged to be worth more by the hour. The moderation that supply and demand normally imposes was vitiated in a gold rush frenzy.

What was happening in real estate was happening in cars and retail sales, thanks to the banks’ credit card divisions. There also interest rates were decoupled from risk and credit was extended to anybody with a pulse. College kids and doddering ancients living on Social Security were offered credit cards. Instead of the banks and the bond packagers who bought the credit card debt doing their job, which consisted of saying no to credit-unworthy applicants, the banks lobbied through Congress new, tough strictures in the borrower bankruptcy law.

You might have thought that Alan Greenspan, who spent his days at the Fed staring at the green numbers on his monitors, would have taken action. He could see how much people were making, how much they were spending and how much they were owing. He could see that they were borrowing more than they could pay back.

Mr. Greenspan and his successor, Ben Bernanke, had to know that sooner or later the Chinese would not or could not continue to supply the money to cover the difference between American incomes and American debt obligations. They had to know an essentially unstable system would have to crash.

To much applause, although not from some of the more cynical Wall Street traders, Mr. Bernanke rushed in with a money hose to pour water into every hole he could find. As he did so, a sluggish Congress and a torpid president bestirred themselves to come forth with financial paddles to regulate the economy’s arrhythmia. This is the “stimulation package.”

The package will put a few hundred bucks into many hands who certainly can use them, but it leaves the question of what happens to the trillion or two of debt unaddressed. The package also offers savings and even some tax rebates to businesses that speed up capital investments. All very nice but hardly decisive.

If the worthies believe that the stimulus package will carry us back to the status quo ante, they are in the fourth or final stage of delirium. We cannot return to spending more than we make to hold onto our prosperity. We have run out of credit.

If the bunch in business, politics and media who run the country don’t get it, we are in for a new world of pain.

"As most of you know, there seems to be a lot of concern about whether or not the tax cuts of President Bush will be extended" he said. "Well, people have asked me, as Chairman of the [House Ways and Means] Committee, do we plan to extend these tax cuts in 2010?

"And I remind them--David Dinkins, who's older than me--that at 78 years old, I don’t buy green bananas," he went on. "And so I don’t know what’s going to happen in 2010."

Then Rangel, who is a long-time supporter of Hillary Clinton, said, "And after seeing the great fights on the screen last night at the Democratic debate, I don’t know what is going to happen in 2008."

He finished, "But having said that, it would seem to me that when we take a look back, not only did Hillary Clinton find her voice, but it seems like Chairman Greenspan has found his voice in saying that we should not have had those cuts unless what? Unless they were paid for."

This is a fancy-dancy way of saying, “You foolish little persons can get as worked up as you wish about your candidates and their promises, but the power, the decisive power, no longer adheres to the now puny offices they are breaking their butts trying to get elected to.”

What he says, many feel. People are seized by a sense that everything is out of control and nobody can do anything about runaway lives in a runaway society. Some of the anger and the angst about the millions of illegal immigrants must stem from its seeming to be an outrageously obvious case of nothing being done about a hurtful and humiliating indifference to the law. The law is broken a thousand times a day in a thousand ways and the response to those who get mad about it is “get used to it.”

One of the unspoken premises in the debate about illegal immigration is that the phenomenon is too big to be controlled or regulated or suppressed. The globalists have a similar metaphysical premise for their reiterated assertions that there is nothing you can do about economic conditions but suffer them and swim with them if you are able to keep your head above the competitive tides.

The globalists are like the old-time Communists who preached that they would triumph because the laws of history had decreed the victory of the proletariat. Likewise, globalism is given to us as the ineluctable working out of the laws of nature, as though there is anything natural about a complex economic system erected by human beings, not according to the laws of anything but according to their will, their pleasure, their confusions and their lusts.

The automobile workers must be feeling the impotence of having to accept an unwanted change in their lives. When the details of the new UAW-General Motors contract are worked out, many of them will be living on a third to perhaps a half of what they have been paid. It must be all the more galling to know that these pay cuts have nothing to do with how hard or how well they have worked.

Mr. Greenspan did not have American auto workers in mind when he said what he did. They are small potatoes for such as he. He was talking about the big stuff, about banks in Germany holding American mortgages, about the reach and effect of hedge funds, about decisions made halfway around the globe forcing us one way or another.

A few days ago it was announced that the Mubadala Development Company was going to buy a billion-dollar-plus chunk of the Carlyle Group, the private equity outfit that owns large and small pieces of everything, including a building supply house, tuxedo rentals, a truck transmission manufacturer and nursing homes. The California public pension system has a large piece of Carlyle, but Mubadala is more interesting because it is owned by the government of Abu Dhabi, the capital of the United Arab Emirates. Should Aunt Clara in one of Carlyle’s nursing homes develop bed sores from neglect, it may not be so easy to rectify the situation with shareholders half a world away.

Mubadala is classified as a sovereign wealth fund—that is, a fund owned by a government investing in every kind of security you can think of. It is estimated that sovereign wealth funds may have already invested $2.5 trillion around the world. The Chinese version of such a fund has bought itself a piece of the Blackstone Group, another huge private equity fund, and has also invested in Barclays.

When China or an Arab country uses a sovereign wealth fund to invest, occidental eyebrows arch and the worry flag is flown, but it is not only nervous-making nations that have such funds. The State of Alaska has one, as do Norway, Singapore and Australia. The French government has been an investment partner in domestic commerce and industry for centuries. Many other nations are as well.

All of these nations have one thing in common: They earn more foreign money than they spend, either by selling oil or, like China, by having developed a favorable manufacturing trade balance. America, which apparently does not have enough money to pay for medical treatment for its own children, is in no position to start a sovereign wealth fund of its own. It can, however, be affected by them.

It is not known if any of the sovereign funds occasionally make investment decisions for political rather than business reasons. It is possible that one of these funds might fall into the hands of a group of managers who lack the prudence to stay conservative. What if such a fund were a very large fund? What if it were to get into trouble via borrowing so that it had to come up with cash fast, and the only way it could get it would be to dump a vast number of U.S. government bonds on the market, all at once? That could set off a worldwide panic of a sort we have only had glimpses of until now. The financial planet could be blindsided, since sovereign wealth funds operate in their own private darkness. Nobody knows what they may be up to.

Thanks to a thousand treaties, laws, financial ties and a kaleidoscope of ownership forms and arrangements, we are losing control over our own society. Are we reduced to yammering over inconsequentialities such as gay marriage or intelligent design because we cannot touch or even get a grip on the big, important factors dictating how we shall live and what the qualities of our lives will be?

Now caught in not one but two wars that we cannot win and cannot end, we are a people not in control of our own destiny. Whether that is to be our permanent condition depends on our finding the will, energy and urgency to reclaim our independence.

In his book, Mr. Greenspan complains that the Bush administration paid little attention to the conservative idea of fiscal constraint, and the Republicans in Congress were even worse. “They swapped principle for power,” he writes. “They ended up with neither.”

Mr. Greenspan understood that the Bush administration’s treasury secretaries were capons, but why did Mr. Greenspan snip off his own political testicles? As chairman of the Federal Reserve Board, he did not serve at the president’s pleasure. Mr. Bush could not fire him. So there was Greenspan, the one official concerned with economics who was in a position to talk but kept his mouth shut as debt mounted.

Given Mr. Greenspan’s adoring business press and his demigod status with politicians of whatever stripe, there was a solid chance that he could have stopped or at least mitigated the grotesque Bush tax cuts. Now he comes along to blame Mr. Bush and the circle of crackpots Mr. Bush surrounded himself with, but he might also have blamed himself.

His espousal of a balanced budget and pay-as-you-go government was not a questionable theoretical proposition. For the eight years of the Clinton administration he had been a successful collaborator in such a policy. He admired Clinton’s two effective treasury secretaries, Robert Rubin and Lawrence Summers. He knew it could be done, and yet he kept his yap shut when he should have been howling to high heavens.

Mr. Greenspan could have done more than howl. He could have taken corrective action. A central bank, at least to some extent, can counterbalance profligate borrowings by shrinking the money supply and pushing interest rates up. Had he done so, Mr. Greenspan would have heard howls aplenty from the White House and a Congress merrily in the act of cutting the taxes of the rich.

For years Mr. Greenspan confined his public utterances on the worsening housing bubble to polysyllabic imbecilities, never calling it a bubble, though it was he who was blowing the air into it, preferring instead the word “froth.”

On his book publicity tour Mr. Greenspan tells the Financial Times that froth “was a euphemism for a bubble,” explaining, in case we don’t get it, that “all the froth bubbles add up to an aggregate bubble.” His aggregate bubble, which he could have punctured long since, is threatening to become to our domestic scene what the Iraqi war is abroad.

This guy is still a hokum-meister. First he writes in his book, “We were willing to chance that by cutting rates we might foster a bubble, an inflationary boom of some sort, which we would subsequently have to address. … It was a decision done right.” But then The Wall Street Journal writes that “[Greenspan] attributes the housing boom to the end of communism, which he says unleashed hundreds of millions of workers on global markets, putting downward pressure on wages and prices, and thus on long-term interest rates.” This is hardly better than dada economics. Sure, blame the speculation-driven housing debt on the late Boris Yelsin.

After having put the responsibility for the housing mess on the death of communism, Mr. Greenspan next takes on the colors of some sort of liberalism by declaring that “the benefits of broadened home ownership are worth the risk.” In other words, without the bubble lower-income people would not have had a chance to own a home of their own. But did they really have such a chance?

If they “bought” their homes on such disadvantageous terms that they are unable to keep them, that is a fine kind of home ownership. Though the actual number is unknown, hundreds of thousands of lower-income families bought homes on a no-money-down basis through ruinous adjustable rate mortgages. It would be closer to the truth to say they did not buy these houses, but merely rented them at extortionate prices.

None of this seems to bother Mr. Greenspan, who told an interviewer something to the effect that the bubble has been worth it because, “Protection of property rights, so critical to a market economy, requires a critical mass of owners to sustain political support.” Someone might want to tell Alan that his critical mass of owners is on the verge of vaporizing faster than the polar ice cap.

Perhaps what will be the most remembered line in his book says that “the Iraq War is largely about oil.” No sooner had the reactions to that started popping off all over the place than Mr. Greenspan began to backtrack.

In an interview with Bob Woodward, Mr. Greenspan said he never heard the president or Vice President Cheney “basically say, ‘We’ve got to protect the oil supplies of the world,’ but that would have been my motive.” Mr. Greenspan said he made his argument to various administration officials, but one of them told him that they couldn’t talk about oil.

To borrow H. L. Mencken’s oft-quoted remark about money, “If they say it isn’t the oil, it’s the oil.”

Perhaps Mr. Greenspan’s most intriguing remark was made to The Wall Street Journal’s Greg Ip. He said, “Now it turns out politics is less important, domestically, than it was, because globalization is taking over an ever increasing part of the decision making process with the exception of national security.”

In other words it does not matter what the pygmies may think of me or whether you have your elections, whether you pick Hillary or Obama or some lefty fruitcake; you don’t get to decide the big stuff. The major decisions are made away from you by the big guys playing the big game sometimes in New York, sometimes in London, sometimes in Tokyo or Dubai, but always where you cannot see it or know what’s done until it is done, and then it doesn’t matter what you do because you cannot do or undo anything.

“Garbo talks.” That was the advertising slogan for Greta Garbo’s first talking picture, Anna Christie. A similar advertising campaign would have been appropriate for the famously cryptic economist who developed the dropped hint into a high art during his long service as chairman of the Federal Reserve, from his appointment by President Reagan in 1987 to his retirement in 2006. In The Age of Turbulence, Greenspan speaks—and speaks and speaks and speaks, for more than 500 pages, destroying his reputation for laconic concision.

Even before the book hit the stores, snippets were fueling media controversies. Bloggers and pundits seized on Mr. Greenspan’s passing remark that he is “saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil”—as though it were not evident that America’s Persian Gulf policy has been in large part about oil since the era of Franklin Roosevelt. Other commentators blamed Mr. Greenspan for not manipulating interest rates to avert the stock and housing bubbles. Many of the same critics on the left, one suspects, would have been the first to denounce Mr. Greenspan as the class enemy of the horny-handed sons of toil, had he sought to lance the bubbles by jacking up interest rates as they now claim he should have done.

It’s hard to square the Alan Greenspan of blogosphere demonology—the one who conspired with Bush to invade Iraq and single-handedly created the stock and housing bubbles—with the thoughtful, modest, well-informed and thoroughly likable author of The Age of Turbulence. One reason the book is so long is that much of it is devoted to Mr. Greenspan’s thoughts about the evolution of the global economy in the decades ahead. Chapters include “The Choices That Await China,” “The Tigers and the Elephant” (the elephant being India), “Russia’s Sharp Elbows” and “Latin America and Populism.” Mr. Greenspan’s free-market preferences do not prevent him from realizing that different nations have different economic models; he has a chapter titled “The Modes of Capitalism.” His sensitivity to national differences in economic culture is a refreshing antidote to the simplicities of Thomas Friedman. It’s a pity that this part of the book has received almost no attention.

The tour d’horizon of the global economic landscape notwithstanding, The Age of Turbulence is first and foremost a memoir by a public servant who excelled at politics, with the requisite minor revelations about the Clinton and Bush administrations. Inevitably, headlines have been generated by Mr. Greenspan’s harsh criticism of President George W. Bush and the contemporary Republican Party. Mr. Greenspan, who describes himself as a “libertarian Republican,” repeatedly bemoans the abandonment by today’s Republicans of what he takes as the core value of conservatism: limited government.

“‘Deficits don’t matter,’ to my chagrin, became part of Republicans’ rhetoric,” he writes. “It was a struggle for me to accept that this had become the dominant ethos and economic policy of the Republican Party. But I’d had a preview of it many years before, in the 1970s, over lunch with Jack Kemp, then a young congressman from upstate New York. He complained that Democrats were always buying votes by boosting spending all over the place. … My sensibilities as a libertarian Republican were offended.”

But Mr. Kemp was right, at least as far as political strategy was concerned. Majority parties in the U.S. have always spent and taxed (or borrowed) their way into the majority. The Lincoln Republicans were the party of high tariffs, big government and public investment. When they turned into the penny-pinching, green-eyeshade party of Alf Landon, it was the turn of the New Deal Democrats to be the majority party of guns, butter and deficits. Reagan and George W. Bush both won reelection by ignoring the advice of libertarian Republicans. Reagan refused to attack Social Security, and Bush presided over the biggest expansion of socialized medicine since L.B.J.: the prescription drug benefit.

By complaining that the Republicans have abandoned their small-government principles, Mr. Greenspan—dubbed “the Undertaker” in his youth by his friend the libertarian guru Ayn Rand—seems to have confused the conservative movement with the quite different libertarian movement. The libertarian movement broke with the Buckley-Goldwater-Reagan conservative movement in the 1960’s over the latter’s support of a big military and its insufficient determination to repeal the New Deal. The temporary Republican majority built by Reagan and Gingrich was built by appealing to populist working-class Reagan Democrats, who reject cultural liberalism but love their New Deal entitlements like Social Security and Medicare and are instinctively hawkish in their foreign policy views. American voters are glad to have the Medicare drug benefit that Mr. Greenspan denounces.

The hostility of even Republican voters to partial privatization of Social Security was so intense that no proposal even came to a vote in a Republican Congress. Mr. Greenspan’s proposed reform of Medicare is likely to be equally anathema to the American people: “Restored balance could occur through the development of private accounts (which I support) or through legislation requiring Medicare to be means-tested (as is Medicaid).” No serious health care economist, as opposed to libertarian ideologues, believes that it makes sense to replace Medicare with a system of tax-favored individual private savings accounts. And the American public likes universal entitlements and loathes means-tested programs for the poor. For someone with a reputation for political finesse, Mr. Greenspan seems oddly indifferent to political reality. But he’s true to his libertarian principles.

While Mr. Greenspan is a much more significant public figure, his book brings to mind a recent book in which another libertarian economist similarly denounces George W. Bush and the Republicans for straying from small-government ideals: Bruce Bartlett’s Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (2006). With the Republican Party now dominated by big-spending populists and hawks, and with New Dealish economic liberalism resurgent within the Democratic Party, libertarians like Alan Greenspan and Bruce Bartlett have nowhere to go. Except, that is, on book tours.

Michael Lind, the Whitehead Senior Fellow at the New America Foundation, is author of The American Way of Strategy (Oxford).

It was reported Friday that she returned donations from company execs. Now, The Politicker has obtained a letter(.pdf) from her to the Acting Chairman of the Federal Deposit Insurance Corporation (the guy who won't be replaced by Diana Taylor) in which she opposes Wal-Mart's application for federal insurance on deposits in a bank-like entity it owns.

This is hardly a radical position -- it's Alan Greenspan's stand -- and the letter is pretty Greenspanian. She writes to "express my serious reservations" about insuring deposits at "industrial loan companies," and adds, "I am concerned about the recent attempts of wholly commercial entities such as e Wal-Mart, to exploit a loophole in this existing prohibition in order to expand their reach into the banking and
financial services realm."

Still, Hillary's friends in labor will no doubt notice.

It also reports a similar weakening of the real-estate markets in formerly hot towns like Boston, Washington and San Francisco. These are not the only places where real estate seems to be running into trouble, but another 13 percent drop in a three-month period hardly seems likely. That would be a free fall, behavior you see from time to time in the stock market, but not in real estate. Let’s call this last three-month performance one of those unaccountable blips.

Still, something is afoot.

It may only be that the housing market has reached a price plateau. Maybe we’re hitting a period of stability, of neither up nor down in real-estate prices. Nothing to rejoice about in that; such a situation may not be the crack o’ doom, but doom itself. It is possible that a level real-estate market could trigger a major recession, which will, in its turn, bring real-estate prices farther down later on.

Doom or no doom depends on whether or not American prosperity turns on a continuously rising real-estate market. Retiring Federal Reserve chairman Alan Greenspan has recently published some numbers suggesting it does. He says that the practice of “cashing out”—that is, refinancing the house every couple of years as its value increases—has given consumers a huge unearned income stream.

His figures tell him that refinancing and home-equity mortgages constitute no less than 7 percent of American disposable income. In money, that’s an infusion of $600 billion a year, or twice the size of George Bush’s tax cuts. For that gigantic sum to vanish, real-estate prices don’t have to collapse; all they have to do is stay the same. If they stay the same, consumer spending shrivels. Add on to that the rise in the cost of fuel and the continuing flat or slight decline in the line on the graph indicating personal income and voilà! Recession.

For years, economists have taught us that the driving force in American prosperity is consumer spending. The fuel for that driving force has been the Greenspan policy of such cheap and available money that anyone in the United States not behind bars or in a straitjacket could get a loan to buy a home.

It was quite a system that we worked out, or stumbled on, this past generation. You bought a house on a next-to-no-money-down basis, the house increased in appraised value by 10 percent even before the first load of dishes got put in the washer. You refinanced the house to extract the 10 percent appreciation and spent it on a vacation and, by the time you’d returned from the camping trip to Colorado or the Kalahari desert, the value of the house had gone up another 10 percent. Time to refinance again and use the money to wipe out the family’s credit-card debt. And the best part of it has been that this income was manna from above, free money you didn’t have to work for. The only labor involved was signing the paper and putting out the effort to get down to the mall and spend it before it was time to refinance again.

The system has been an A.T.M. available for an infinity of withdrawals, and you never had a need to make a deposit. People gave up saving, as the figures show, and why not? Who needs to save if somebody is going to fill up your bank account every year or so with near-automatic punctuality? In such an atmosphere, the millions went on a shopping spree with their free money.

There is no precedent for this.

During the stock-market boom years of the 1990’s, close students of these matters spoke of the “wealth effect,” by which they meant that when people saw how their investment accounts were swelling up, they felt that they were wealthy and spent like crazy. More often than not, they didn’t cash in their stocks, hoping, as they were, that their securities would continue to increase in value. Nor did they, à la housing, borrow on their stocks. They just felt rich and spent as if they were. Then, as many of us know to our sorrow, they got whacked when the stock market tanked, but at least they were not up to their hairlines in debt.

The housing boom/bubble hasn’t created a wealth effect. This time around, people got the cash smacked right into the palms of their hands. It’s as though, instead of a wealth effect in the 1990’s boom, shareholders had borrowed on their stocks as they increased in value. Had they done so, not only would their securities be worth much less after the market caved, but they would still have owed the money they had borrowed as well.

In fact, nothing that horrible could have happened. The Securities and Exchange Commission doesn’t allow that kind of borrowing, least of all by inexperienced financial naïfs. The financial disasters of the past have taught both sensible business people and regulators that that kind of upside-down debt pyramid puts not only individuals at awful risk, but the entire society.

What small shareholders cannot do with their stocks, they can do with their houses.

The rules make it impossible to borrow what amounts to $15 on a security that ends up being worth $10. You can do it with your house, however. Millions have put themselves in just that situation if housing prices continue to fall.

The Federal Reserve, which is a rough counterpart in housing to the Securities and Exchange Commission in stocks and bonds, has done nothing to impede this particular form of craziness, probably because it has been the fuel of economic growth, and evidently there is no one in authority who will take it upon himself to look at the quality and dangerousness of the growth.

Nor was there anywhere a council of wise persons to say the wise old things like “Put something away for a rainy day; don’t spend it all.” Just to the contrary: The wise persons have been raking it in at the top as this magic system of borrow and buy, borrow and buy drives growth. It matters not what kind of growth, nor whether this is a sustainable financial model for America or the world. If the numbers are up, it’s good, and if the numbers are up a lot, it’s better.

For the last few years, the wise persons have been telling us that as long as mortgage rates stayed low, house prices would remain high and higher. According to this way of thinking, all it takes to sustain a boom/bubble is cheap money. Well, the money is still cheap. Mortgage interest rates haven’t taken any big appreciable jump upward. So how is it possible for the boom to stall?

Mr. Greenspan may have supplied the clue. He says that 14 percent of home mortgages are for second homes. Many of those second homes are places in the country, but many are not: They are houses and apartments bought as a speculation. They are bought to be held until construction is complete and then sold. They are to be flipped as fast as possible, if for no other reason than that the flippers don’t have the bankroll to hang onto a property for any extended period of time. These places are bought for fast resale and, we can suspect, such sellers will cut their prices much quicker than a person selling a house he is living in.

If this is so, we have an example of an overbuilt market, a condition that reappears as regularly in construction and real-estate development as the ocean’s tides. The last time it happened was 25 years ago in commercial real estate, and the ripple effects almost put the whole damn country in the poor house.

So let’s hope this article is needlessly alarmist and completely mistaken.