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When banks lose money, a credit crunch occurs -- and that's a recipe for recession. BankAmerica -- the nation's fifth-largest bank -- happens to have $1 billion in exposure to a hedge fund called D.E. Shaw & Co. On Wednesday, BankAmerica announced that it had lost a whopping $370 million in its dealings with Shaw. Then it announced it was buying the fund out, which could mean even more losses while BankAmerica unwinds Shaw's apparently disastrous positions. Will there be money to loan to companies seeking to, say, hire more workers? Not likely. Greenspan's dark fear isn't just that BankAmerica took a hefty loss, it's that the bank has plenty of company.

Which is why Greenspan, no fan of government intervention, picked the spot on the food chain that's right between the banks and the people: interest rates. Then he hit the button -- twice. Thursday's quarter-point cut in the short-term interest rate, which is the rate at which the Fed lends to banks, was accompanied by an equal cut in the discount rate, the rate at which the Fed lends to banks that are waist-deep in quicksand. "It's very interesting that he cut rates at the discount window as well," says Baumohl. "Maybe he's expecting a lot of banks to be in trouble." It might, in fact, be a very long line.

A rate cut by the central bank gives an economy two chances to dodge the bullet. Banks can pass the savings on to their customers, emboldened by the fact that a lower-interest loan is a safer loan, or they can keep their lending rate steady, which increases the loan's profitability and helps refill a shattered bank's coffers. That in turn encourages further lending. Either way, recession is averted -- or at least softened; the U.S. may well be headed for a recession no matter what Greenspan does. "There's a limit to what Greenspan can do," says TIME Wall Street columnist Daniel Kadlec. "He can steer the economy, but he can't save it by himself."