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In the beginning there was Alan Greenspan. Appointed by Ronald Reagan in the late 1980s as chairman of the Federal Reserve, Greenspan was a Master of the Universe, a title he earned by working for decades on Planet Wall Street. Greenspan took office as Fed chairman while the Evil Empire of Moscow was collapsing; after years of ruthless conflict, known as the Cold War, the Confederation of the Free World gained victory and Greenspan was tasked with helping Western capitalism colonize Planet Earth. Worshipped by Western high finance - the Supreme Council of the Free World - Greenspan was considered the High Priest of future profits.

Greenspan eagerly got to work. His most popular move was to pursue a deflationary policy. He began cutting interest rates, which reduced the cost of capital. This was music to Wall Street ears. Victory over the Evil Empire had opened its borders for workers who had until then been trapped inside; these workers quickly joined the Western Europe labor force. In the space of a few years, the West’s labor supply doubled and salaries began falling. As labor costs shrank, profits rose.

Each time the storm of a crisis linked to globalization gathered on the horizon, Greenspan dismissed it by cutting the interest rate. This happened in the late 1980s with the Mexican peso crisis, in the mid 1990s with the Asian market crisis and again in the post- 9/ 11 economic slump. Wall Street was happy, very happy, that interest rate charts looked like ski slopes, because when the cost of money falls, banks and financial institutions always make a profit. So began the rush to market cheap loans. From Citigroup to J.P.Morgan, banks aggressively competed with each other in selling credit. Demand for credit was strong and grew stronger as people were lured to believe that easy credit was the solution to all their problems. With the constant reduction in interest rates, banks periodically refinanced their outstanding loans at lower rates and pocketed the profits. It was a sure thing.

Making money in the galaxy of global finance was so easy that several Masters of the Universe, CEOs of large banks, set up new private equity businesses to maximize returns. Thus the Blackstone Group was born from a rib of Lehman Brothers. Blackstone is a hedge fund, an enterprise that gathers liquidity in the market to invest it where the returns are the highest. With the cost of capital and labor falling, the market was awash with money from corporations and shareholders, all eager to make even more money, it soon became apparent that the best sector in which to invest was the growing US mortgage industry.

Easy and cheap credit boosted demand for real estate, pushing property prices upwards. Banks and lending institutions decided to profit from this, using derivatives to transform growing debts into assets. Enter mortgage-backed securities: bundles of mortgages became stocks whose value was linked to the price of the properties they funded, and not to the riskiness of the outstanding debt. Each time interest rates dropped and property prices rose, those who had mortgage-backed securities in their portfolio made a profit. These profits ended up being redistributed among shareholders and CEOs of banks and hedge funds. This explains the huge bonuses and compensation packages of high finance. In 2006, Stephen Schwarzman, chief executive and co-founder of Blackstone Group, by then the world’s largest hedge fund, personally earned $2.5 billion.

The US Treasury, now headed by a former Master of the Universe from Goldman Sachs, Henry Paulson, kept the party going.

Soon foreign banks and pension funds, as well as hedge funds, were getting into this business. They purchased mortgage-backed securities issued in the United States from big American investment banks. And thus American mortgages were globalized. Property loans for new developments in Texas ended up in the pension portfolios of groups of dentists from Berlin. When the crisis came, it too was global. A bank from the British Midlands, Northern Rock, was the first one to be nationalized to avoid bankruptcy due to the subprime meltdown in the United States.

As credit became cheaper and cheaper, banks and hedge funds borrowed more and more money against the rising value of mortgage-backed securities. They borrowed from each other to enlarge their portfolios, which became enormous, and they borrowed against the rising value of properties linked to the mortgages, debts that were being treated as assets. The Masters of the Universe masterminded these deals. They lent each other money they did not have, money that existed only as accounting figures. Among these lending Masters was Carlyle Capital, offspring of the Carlyle Group, the “financial club of the powerful”, whose members include or included former British prime minister John Major, President George Bush senior, and the Arab super super-rich, among them, the bin Laden family. The fund used its amazing connections at high political and financial levels to gather cheap credit. And the giants of global finance, Citigroup, Deutsche Bank, Bear Stearns, Lehman Brothers and UBS, got into financial scrums to become its lenders at phenomenal and ridiculous conditions: for each dollar in assets on their account books, they lent $31 more. This ability to lend the same dollar 31 times is called, ‘leverage.’ Carlyle Capital’s leverage -- its ability to raise money in the world market -- was the most extreme. And when it went down, it had $22 billion in outstanding debt against assets of only about half a billion.

It has become apparent that the galaxy of global finance is not a real one. It is made of paper and accounting numbers. The subprime meltdown is destroying virtual empires erected by the Masters of the Universe: Carlyle Capital’s failure forced the bargain basement sale of Bear Sterns, whose CEO lost $800 million in the space of one day. As share prices plunge, investors on Wall Street may be worth hundreds of millions of dollars less when they leave the office in the evening than when they arrived in the morning. Don't cry for these guys. Losing a hundred million is nothing to those, like Bank of America’s mortgage unit chief, Anthony Mozillo, who pocketed over half a billion dollars in compensation for a bankrupt and bankrupting business.

Are we witnessing the beginning of the end of the galaxy of global finance? The collapse of the global house of cards constructed by Greenspan? Certainly this seems the case for Carlyle’s big lenders. Last week UBS, the swiss giant, wrote off $19 billion. In December 2007, UBS had already registered a loss of $12.5 billion because of the subprime mortgages, a loss luckily covered by a loan from two government investment funds, one from the Gulf and one from Singapore. Also this month, Deutsche Bank wrote off $2.5 billion and it is likely that in the coming weeks, the primary lenders of Carlyle Capital will issue more similar announcements.

What we are left with are two million families in the USA facing foreclosure, the collapse of manufacturing wages worldwide – and a memoir by Alan Greenspan that pretends his fantasy world was never exposed as a world crisis in the making.

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Greg Palast is the author New York Times best-selling author of [25] Armed Madhouse and The Best Democracy Money Can Buy. Loretta Napoleoni is also author of the international bestseller, [26] Terror Inc.

Support Greg Palast's investigations by donating to the [5] Palast Investigative Fund.

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