MCCULLEY: YOU'VE GOT TWO ISSUES HERE. WHAT TYPE OF REGULATIONS YOU HAVE.AND THEN THE OTHER ISSUE IS IF YOU'RE GOING TO HAVE DO BACKSTOPS OR BAILOUTS AND BACKSTOP IS NOTHING MORE THAN A PRE-EMPTIVE BAILOUT, IF YOU'RE GOING TO DO THAT THAT SHOULD BE UNDER THE FISCAL POLICY MANTLE BECAUSE IT IS A FISCAL POLICY OPERATION.YOU MAY NEED TO HAVE THE FED BEING THE VEHICLE IN THE VERY SHORT RUN. BUT ALAN AND I COULDN'T AGREE MORE THAT WE HAVE A SEPARATION OF MONETARY AND FISCAL POLICY IN THIS COUNTRY AND THE FED SHOULDN'T BE IN THE FISCAL POLICY BUSINESS.THAT'S CONGRESS'S BUSINESS.

BARTIROMO: RIGHt AND YOU KNOW, PAUL VOLCKER WAS ALSO VERY VOCAL ABOUT THIS IDEATHAT THE FED SHOULD BE GETTING OUT OF THE WAY.AND YOU HAVE LONG SAID, I MEAN, THIS COULD BE APPLES AND ORANGES, BUT YOU HAVE LONG SAID THAT THE FED SHOULD NOT BE IN THE BUSINESS OF CRACKINGBUBBLES. RIGHT? AND THE FED IS VERY MUCH RIGHT NOW FOCUSED ON THIS HOUSING CRISIS AND FANNIE AND FREDDIE AND THIS BACKSTOP. ARE WE MISSING ANOTHER ASSET BUBBLE CREATED RIGHT NOW IN TERMS OF INFLATION AND COMMODITIES?

GREENSPAN: WELL, I THINK THE COMMODITY ISSUE IS SOMEWHAT DIFFERENT.THERE ARE LONG-TERM STRUCTURAL PROBLEMS IN THE OIL MARKET, WHICH IS THE BIG DOMINANT ELEMENT IN THE COMMODITIES THING. LARGELY BECAUSE OF THE FACT THAT THERE'S A TREND WHICH IS VERY DIFFICULT TO PROJECT, NAMELY THAT UNDERLYING CONSUMPTION, WHILE RISING AS MUCH AS OIL IN THE GROUND, THE RESERVES OF OIL,IS RUNNING FAR IN EXCESS OF THE RATE OF INCREASE IN THE PRODUCTIVE CRUDE OIL CAPACITY BECAUSE WE'RE NOT INVESTING ENOUGH TO TAKE THE OIL OUT OF THE GROUND AND TO ESSENTIALLY CREATE A SUFFICIENTLY LARGE FLOW TO BALANCE THE DEMAND THAT'S COMING MAINLY FROM ASIA. THE PROBLEM THAT WE HAVE HERE IS THAT BECAUSE THERE HAS BEEN THIS PRESSURE THE BUFFER IS GRADUALLY DISAPPEARING BETWEEN SUPPLY AND DEMAND, THERE'S BEEN UNDERLYING PRESSURE ON PRICES, WHICH STARTING IN 2004 CAUGHT THE EYE OF THE FINANCIAL SYSTEM, AND IF YOU LOOK AT THE DATA THAT THE BANK OF INTERNATIONAL SETTLEMENTS PUBLISHES ESSENTIALLY ON THE EMOTIONAL VALUE OF BASICALLY CRUDE OIL FUTURES, IT'S GOING FLAT AND THEN IT JUST GOES STRAIGHT UP.WHAT THAT MEANS IS THAT WE ARE MOVING FORWARD, A PRICE INCREASE WHICH IS GOING TO HAPPEN ANYWAY, AND I THINK THIS IS INDEED SPECULATION, BUT IT'S GOOD SPECULATION IN THAT BY CREATING PRICES MOVING FORWARD MORE QUICKLY THAN THEY WOULD HAVE YOU ESSENTIALLY CURB THE LEVEL OF CONSUMPTION FAR SOONER, AND THEREFORE THE PEAK OF PRICES, WHICH WILL ULTIMATELY GET TO WITHOUT THE SPECULATION IS CUT OFF.

BARTIROMO: SO WHAT'S THE BIGGEST CHALLENGE FOR THE U.S. ECONOMY TODAY? IS IT A SLOWDOWN IN THE ECONOMY AND GLOBAL GROWTH?IS IT INFLATION BECAUSE OF WHEREOIL AND COMMODITIES ARE? OR IS IT THE FINANCIAL SYSTEM'S STABILITY?

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