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Market prices dropped last week because they were over-inflated and that's what balloons do when you prick them. Greenspan helped play the role of the prick this time by threatening to hike interest rates, shaking a sensitive market uneasy about the possibility of a court-ordered split-up of Microsoft. Investors panicked, and sold as if they had some massive belated realization that most dot-com stocks have the same intrinsic value as Confederate scrip.

But last week's tumble was not entirely investors' fault. A whole posse of equity analysts employed by the very brokers who sell the shares and do the investment banking for the companies, has cheered along the stampede of online stocks. For years investors have been told that stocks are worth what people are prepared to pay for them, regardless of the failure of these companies to turn a profit.

But the strange goings-on along Wall Street are not the reason that Greenspan is threatening to spoil the party. It is his single-minded obsession with, and strange definition of, inflation.

Like most nightmares, there is a large element of irrationality and imagination in Greenspan's inflation fixation. For Greenspan, "inflation" is augured by the faintest hint that ordinary employees may be getting pay hikes, or even that too many people are getting jobs, because that may embolden people to ask for a raise. "I do not consider the minimum wage as a positive force in our society," he told Congress in 1998.

For some reason, paying top executives huge salaries and even bigger stock options has not triggered any inflationary fears in the Fed chief so far. Even paying huge amounts for worthless companies is not inflationary in the Fed's book. If blacktulip.com has a valuation greater than half the world's economies, that's no problem for them.

Indeed, Greenspan has resisted attempts from other Fed officials to take action that might have deflated some of the puff from the balloon economy. Above all, he fought grimly against attempts to limit the margins on brokerage accounts. By March 2000, the NYSE member firms alone had extended $278.5 billion in credit to wannabe millionaires. That was 5 percent increase from February, which was itself an 8 percent spike from January's number. This contributes to a real inflationary spiral in the stock markets, and accelerates the fall when the bubble bursts as stock is sold to meet margin calls.

But there is a pattern here. When Long Term Capital Management went bust, losing untold billions of leveraged money in derivatives trading, it was Greenspan who came to its rescue. When a third world country is left high and dry by the tides of the global currency market, the Fed talks of moral hazard to emphasize why its people should pay up. When it's Wall Street bankers, the Fed quickly throws a life preserver. One simple moral solution would be to declare that any margins or other debts incurred in playing the market are gambling debts, and hence under many legal systems, unenforceable. That, however, seems unlikely.

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