The giddy adoration of Alan Greenspan has come to resemble the stock market bubble itself and, when one phenomenon comes to its end, so will the other. Like day traders pursuing virtual wealth on the Internet, the Federal Reserve chairman is now cast as a techno-nerd version of Icarus, flying for the sun. Some days, he seems to believe it himself, talking up the "new economy" hype. Other days, he soberly reminds us that the law of gravity is not repealed. When the illusions do evaporate, we shall see that his wings were made of wax.

The country seems trapped in an American burlesque of Greek tragedy, except the consequences are not going to amuse the chorus. Greenspan will be around for the last act and at least available for questioning about what went wrong. The President, with his keen sense of opportunism, has announced the chairman's reappointment. That decision blights the future for Clinton's successor and further deforms the decaying process called democracy. In Election 2000, we are supposedly choosing the nation's next leader, but Clinton has pre-empted the choice for us. (The selection could easily have been postponed until the next President takes office.) Another four years of Greenspan means that the financial markets, aided and comforted by the Federal Reserve, will continue to run the country. That is, until Icarus meets the laws of physical reality and the country reclaims control of its destiny.

The ominous instabilities are already visible. A few days before Christmas, Standard & Poor's put the US financial system on its watch list of twenty countries that are "vulnerable to a credit bust." Others include China and Turkey. Aside from the stock market, the credit-rating agency observes the rapid rise in domestic debt and in nonperforming loans at commercial banks. A sharp correction in stock prices, S&P warned, "could lead to a hard landing for the economy and, thus, for the banks' portfolios."

If the worst happens, the blame rightly starts with Greenspan and his passive, compliant stewardship of the system. He is a true believer. Unlike his stern, skeptical predecessor, Paul Volcker, Greenspan trusts financial markets, and he trusts bankers, and he trusts the laissez-faire doctrine that government should stand out of the way and let them do their thing. His abhorrence of government regulation will eventually be seen as the hallmark--and central flaw--of our gilded age.

In that spirit, Greenspan weakened the regulatory levers with which the central bank can curb financial excesses or refused to use them. He dramatically reduced the volume of reserves required at commercial banks, from around $40 billion twelve years ago to less than $10 billion. He promoted the odd notion that bank supervision should rely on self-policing. He effectively dismantled the Glass-Steagall Act's separation of banking and securities before Congress repealed the law. Despite the worries he occasionally expressed, he refused to use the Fed's best tool for slowing down stock market speculators--raising the margin requirement on investors' borrowing. The Fed's power was available, however, to bail out bankers and financiers in trouble.

But didn't Greenspan also engineer the booming economy? When the celebrating stops, people may see more clearly that Greenspan was riding the super bull but never mustered the nerve to steer it toward reality. In 1997, after a decade of suppressing economic growth and thus depressing wages, the Fed chairman blinked and let the economy have its head--wise flexibility that may also have been fear of what would happen in a financial collapse. Now he seems to be reverting to type, once again determined to punish innocent wage earners for the excesses of Wall Street investors.

The chairman also got very lucky (as did America at large) because the global financial crisis produced falling prices and sent foreign capital surging into US financial markets. It felt good for a time, as though America had invented a "new economy." But the United States is now in a dramatically deeper hole--a net debtor position internationally equal to an astounding 18 percent of GDP. If the music stops and the foreign money rushes home, Icarus will land with a thud.

• Get The Nation at home (and online!) for 75 cents a week!
• If you like this article, consider making a donation to The Nation.