MCCULLEY; WELL, WE ALL FOCUS ON THE RECAPITALIZATION GOING ON IN THE FINANCIAL SYSTEM AND THE NEED FOR EQUITY THERE. BUT THE REAL ISSUE IS THAT'S JUST A VEIL ON THE DIMINISHING EQUITY IN THE HOUSING STOCK IN AMERICA.AND THAT'S THE REAL UNDERLYING FUNDAMENTAL, IS HOW MUCH EQUITY DO WE HAVE IN HOUSES? UNTIL WE KNOW THAT, THERE'S A QUESTION MARK ABOUT THE SANCTITYOF THE MORTGAGE-BACKED SECURITIES AND THEREFORE HOW MUCH EQUITY DO WE HAVE IN THE LEVERED-UP INTERMEDIARIES. SO ALAN AND I SPEND A LOT OF TIME TRACING IT BACK TO THE ORIGINAL SOURCE. IN FACT, YOU'VE BEEN DOING A HUGE AMOUNT OF STATISTICAL WORK ON THAT RECENTLY.WHAT'S YOUR BOTTOM LINE ON WHEREWE STAND ON HOW MUCH WE'VE DIMINISHED THAT EQUITY IN THE HOME AS OPPOSED TO THE FINANCIALSYSTEM?

GREENSPAN: WELL, IT'S QUITE SIGNIFICANT. THE CRITICAL STATISTIC, ACTUALLY, FROM THE POINT OF VIEW OF FORECLOSURES AND THE LIKE IS THE NUMBER OF HOMEOWNERS WHO HAVE NEGATIVE EQUITY IN HOMES. I MEAN, THE ISSUE OF MORE LOAN RELATIVE TO MARKET VALUE.

MCCULLEY: WE CALL THAT UPSIDE DOWN IN CALIFORNIA.

GREENSPAN: CALIFORNIA'S -- DOES ITS OWN THING. WHAT IS -- AT THE MOMENT, AS BEST I CAN JUDGE, WE HAVE ABOUT 12 MILLION HOMEOWNERS WHO ARE BASICALLY NET IN THE RED.AND IT TURNS OUT, AND THIS IS THE MOST INTERESTING STATISTIC IF YOU'RE FORECASTING FORECLOSURES, THAT DURING THE RISE IN THIS PARTICULAR STATISTIC FROM A VERY SMALL AMOUNT OF PEOPLE WITH A NEGATIVE MORTGAGE -- NEGATIVE POSITION IN HOUSING, IT'S NOW RISEN VERY SIGNIFICANTLY. BUT ESSENTIALLY, FORECLOSURES, QUARTER BY QUARTER, TAKE ONLY ABOUT 15% OF THAT.IN OTHER WORDS, 85% OF HOMEOWNERS ARE IN THEIR HOMES. THEY BASICALLY PAY THEIR DEBT SERVICE, THEY INTEND TO LIVE THERE. AND SO I FIND YOU CAN'T REALLY FORECAST FORECLOSURES LOOKING ATTHE DELINQUENCIES.THERE'S NO LEAD TIME.

BARTIROMO: IT'S AN IMPORTANT DISTINCTION, ACTUALLY, TO MAKE, BECAUSE OVERALL WHEN YOU LOOK ATIT THAT WAY, THE 85%, YOU FEEL LIKE OKAY, IT'S NOT AS TERRIBLE AS SOME OF THE HEADLINES. LET ME ASK YOU ABOUT SOMETHING YOU SAID THE LAST TIME WE WERE TOGETHER.YOU SAID THERE WAS A OTHER 50 CHANCE OF REEDITION RECESSION. HAS THAT CHANGED?

GREENSPAN: STRANGELY, NO. I THINK THE DATA AT THIS STAGE IN THE UNITED STATES ARE NOT, ASWAS STATED THIS MORNING ON A LOTOF PEOPLE DISCUSSING THE GDP FIGURES ARE SUGGESTING RECESSION. ACTUALLY, I THINK WE'RE PROBABLY LIKELY TO GO THERE.WE'RE RIGHT ON THE BRINK. AND I WOULD BE MORE SURPRISED IFWE DIDN'T THAN IF WE DID GIVEN THE FINANCIAL STATE. BUT THE DATA SHOW, FOR EXAMPLE, IN THE SECOND QUARTER THIS EXTRAORDINARY DECLINE IN INVENTORIES. AND WHEN YOU SUPPRESS THE LEVEL OF GDP BECAUSE YOU HAVE VERY LARGE INVENTORY LIQUIDATION --

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