We may be in a rapidly evolving international financial system with all the bells and whistles of the so-called new economy. But the old-economy rules of prudence are as formidable as ever. We violate them at our own peril.

Even though some down payments are borrowed, it would take a large, and historically most unusual, fall in home prices to wipe out a significant part of home equity. Many of those who purchased their residence more than a year ago have equity buffers in their homes adequate to withstand any price decline other than a very deep one.

History cannot be reduced to a set of statistics and probabilities.

History demonstrates that participants in financial markets are susceptible to waves of optimism. Excessive optimism shows the seeds of its own reversal in the form of imbalances that tend to grow over time.

Excessive optimism sows the seeds of its own reversal.

A decline in the national housing price level would need to be substantial to trigger a significant rise in foreclosures, because the vast majority of homeowners have built up substantial equity in their homes despite large mortgage-market financed withdrawals of home equity in recent years.

If we allow terrorism to undermine our freedom of action, we could reverse at least part of the palpable gains achieved by postwar globalization. It is incumbent upon us not to allow that to happen.