It makes me uncomfortable that this is such a civilized discussion. Can’t someone call someone else a wanker? Shouldn’t someone have invited some wingnut to argue that the entire premise is wrong because there are no such things as bubbles?

But let’s press forward and see if we can’t stir the pot a bit. For that, I am going to return to the housing/credit bubble. To be provocative, I might even venture to argue that the only thing that is makes it seem that the dotcom bubble has been “great for the economy” is that Alan Greenspan managed to save us from a worse fate by shock interest rate therapy. Unfortunately, by lowering rates so far for so long, he inflated a much larger bubble.

That’s why I am a bit surprised that you’ve marshaled Alan Greenspan, the great bubble blower himself, to your side in your recent post, Dan.

In your book, you appropriately take the Maestro to task for having promoted adjustable-rate mortgages at the multi-decade low point for interest rates, the very moment many people should have been locking in long-term, fixed-rate mortgages. The American people have propped up the economy by taking money out of their homes – which has historically been the main asset for retirees – to spend it on boats and big-screen TVs. That’s hardly the stuff of productivity-enhancing investment.

And what about this infrastructure question? The credit infrastructure in this country existed before this latest credit bubble. Adjustable rate mortgages aren’t new. California lenders sold option ARM mortgages fordecades. (Those are the loans where the borrower can opt to make a low minimum monthly payment. The catch is that the unpaid interest gets tacked onto the mortgage principal.)

The new twist is that California banks once restricted these loans to appropriate customers, such as salespeople and Wall Street traders who work for low salaries with big potential bonuses at the end of the year. But in the last several years, they handed these Option-ARMs out more widely than Dan has given out that positive review of his book from the FT’s Gillian Tett.

And the Wall Street structured finance industry isn’t new either. Drexel Burnham came up with the first collateralized debt obligation in the late 1980s. That’s when investment banks first started securitizing mortgages, too. Innovations in finance don’t require huge sums of infrastructure investments. So the post-Pop! benefit has to come from “mental infrastructure,” to use your phrase. But the mental infrastructure that the average person built up over the past several years is the dubious realization that his or her home can be a piggy bank.

The bubble was formed through something all too typical of every credit cycle: lax lending standards. It was only masquerading as credit innovation.