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We can get complex about this if you want (no, thank you), but what happened to the global economy is disarmingly simple: Free money makes you stupid.

It was true in Japan during the 1980s, when bar drinks featuring ice from glaciers were going for $250 per. It was true in Mexico in the early nineties, when you could get kidnapped and still turn a profit. And it was true in the late nineties in the United States, when Internet companies were so prosperous, they destroyed the concept of wearing a suit and tie to work. You can see where that got us.

But the free-money-will-make-you-stupid doctrine became systemic to the global economy only after the dot-commers had hocked their last foosball table. The last six years have been a stunning collision of greed, technological advance, and free-market fundamentalism that produced an economic supercollider.

There's nothing new about greed -- when Chuck Prince, who then headed Citigroup, said in 2007, "As long as the music is playing, you've got to get up and dance," he was just saying what every person who had any access to capital was thinking -- but technology comes in waves, and it made this intersection of tech and the free market particularly toxic.

From time immemorial, we've had a financial system run mainly by men in their fifties and sixties that worked like this: Banks made money by loaning capital and making deals and taking the risk that they would not be paid back or that the deal would fall apart. That was simple enough. But then along came the math geeks who convinced many of us that instead of making loans and taking risk, we could make loans, "securitize" them, and then sell those securities to idiots in Europe and China.

When the old guys asked how that would work, they were shown sheets of paper with equations on them, and instead of saying, "I don't understand one damn thing on this page," they said, "So you're sure it'll work?"

That opened the door to an entirely new concept for banking: Let's make loans to deadbeats and sell them off in "tranches" to idiots in Europe who don't even know what a "tranche" is but like the idea that the S&P rates them highly and that they can make 6 percent a year on one with no risk. (Come here, little kitty.) As long as everyone looked the other way and stock prices kept rising, there was no pressure to do anything differently. Once the house of cards collapsed, all they were going to have to do was claim to have been blinded by science and point to the nerds who designed the strategy. (Which is exactly where Congress's investigation is heading.)

It's popular to blame Bush (it's actually just plain fun, but it's getting a little old) for the lack of regulation that allowed this circus to develop. But it wasn't Bush. The French did it, the Brits did it, the Russkies did it, too. And so on. Two-bedroom apartments in Mumbai were going for more than $3 million. Let me repeat: Mumbai.

The only people who didn't get sucked into this morass were the Japanese (who now, once again, have all the money in the world), but that's only because the bubble didn't last long enough to suck them in.

This was a global frenzy of financial-market freedom that we all participated in. Try to find someone outside of Al Qaeda who complained about the game we were playing.

The odd thing now is that people are trying to pretend everything's okay. It's like those idiots who stay on barrier islands when a hurricane hits. They get to the eye of the storm and say "cool," only to get swept away as the back side of the storm barrels through.

It will be a generation before we return to anything like the giddiness of the last ten years. The boomers, a generation averse to saving, are exiting the consumption equation, and that, along with the end of the fantasy that borrowing eighteen times your annual income is a good idea, means growth will slow to a crawl.

You want the perfect indicator of this? Illegal immigration has plummeted recently. That's a very sensitive leading indicator because -- whatever you may think -- illegal immigrants risk everything to come here, and if they're less willing to do it now, it's because they are hearing from the bottom level of our economic pyramid that things suck and are unlikely to get any better. Taking them out of the equation means less demand for housing, cars, and everything else.

We are not going into a new Great Depression. Central banks, finance ministries, etc. have acted with remarkable speed to counter the financial crisis. As a result, the recession -- which is just starting -- is going to be just as long and painful as recessions normally are.

The fantasy of global free-market capitalism is over. Countries will revert to their historic behaviors: The U. S. will sell off its publicly held assets as soon as feasible (which may be a decade, but still). The Europeans will use it as a reason to go back to communalism, and the North Koreans will use it as a reason to test nuclear warheads over the Sea of Japan, no matter what they tell Condi Rice.

U. S. authorities are going to have a hell of a time balancing the absolute ocean of money they've created with the fact that slow growth is going to be with us for a while. This is how inflation happens.

Finally, we will re-create an entirely new banking system under the ruins of the current behemoths. Thousands of smaller banks will rise to fill the demand for loans, but they will be prudent and do silly things like demand you have an income and an ability to pay back the loan. People will have to live on their incomes, and that will slow growth but make us a sounder economy. These smaller banks will be rooted in communities they know. Ten years from now, the American financial sector will look like it did thirty years ago -- all those little banks will do what banks used to do: lend money to people who both need it and can afford to pay it back. Imagine that.

Richard Medley is the chairman of Medley Capital and a former business partner of George Soros's. He teaches from time to time at Yale University.

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