THREE YEARS AGO, before the insider-trading scandal broke, Ivan Boesky, the famous arbitrageur, decided he wanted to buy a large national magazine. In this venture, I became an extremely minor partner and an extremely major voyeur.

It was a pretty lousy experience, all in all. We didn't get the magazine -- partly because Ivan changed his mind about something at the last second. But that's another story. This story is about the clear and frightening vision this little adventure gave me into the soul of the American economy in the roaring 80s.

The question at first was how much were we going to bid for the magazine. Since this was a small deal -- barely $100 million -- Boesky relegated the calculations to one of his minions. Our first meeting took place in Ivan's old office -- a chaotic warren on Wall Street -- and it went like this:

Boesky Aide: OK, now how much did this company make last year before taxes?

Me: Five million. {The figures I'm using here are rough estimates. I forget the actual numbers. }

Boesky Aide: Fine. What were the depreciation and the other non-cash expenses?

Me: Three million or so.

Boesky Aide: So how muuch cash can we take? What's the total cash flow?

Me: Eight million. Five plus three is eight.

Boesky Aide: Good. You did that without a calculator?

Me: But depreciation is a real expense, isn't it? Even if it doesn't cost us dough now. I mean, at some point we'll have to replace these machines and desks.

Boesky Aide: Later. Let's get back to the facts: On $8 million, we can borrow at a multiple of nine. So that's $72 million. We can liquidate the excess assets in the pension plan, sell off the real estate, cash in the CDs they've got on the balance sheet, and sell the unproductive subsidiary. That's another $20 million. And we'll put up, say, four million of our own money in equity. So that's it. We'll bid $96 million.

And that was it. There was no discussion of budgets or projections, of the magazine industry's prospects, of impending inflation or recession, or of how well the company had been run in the past. The key was the multiple: How much borrowing power did the cash flow (the actual money-in-the-till profit) give us? In this case, it was $72 million, which became the core of our bid. The cash flow would service the debt. In other words, if interest on the debt were 10 percent, we'd take $7.2 million of our profits each year to meet it and a have a little (very little -- $800,000) left over for reducing the principal or meeting contingencies.

We lost. Someone else obviously had a more generous banker. But I did get an education -- a scary lesson in value, and in values.

I learned that the value of a company was determined by what a man with a lot of nerve and a decent track record (a record, it turned out, built on playing with a stacked deck) could persuade a banker to give him. It was as simple as that. Not only the magazine we were after, but almost every American institution, was up for sale, at a price determined by the eagerness of bankers to put their funds to work.

I also learned that there was a huge gap between the real world of business and the unreal world of finance -- or maybe I should say, the world of numerology. It was the manipulation of numbers, often in mystical processes, that enabled people like Boesky to buy -- or at least to threaten to buy and, in the process, to transform -- actual corporations with living, breathing people inside

Since the Oct. 19 crash and the rush of books like Tom Wolfe's novel "The Bonfire of the Vanities" and movies like Oliver Stone's "Wall Street," theres been a lot of talk about greed. "Greed is good," says Stone's villain Gordon Gekko. Greed isn't good, but it also isn't really the point. Sure, it is the driving force -- it keeps the players playing -- but it's always been that way.

I think that something else has been more important in fueling the financial excesses of the 80s: intellectual excitement. To many people, including very smart folks on Wall Street, playing with numbers is fun. And playing with numbers is no longer a nerdy accountant's game. Play with them the right way and you become, in the words of Wolfe's hero, Sherman McCoy, a "Master of the Universe."

You don't have to dirty your hands with actually running companies or producing things. Better, you don't need to become personally involved with employees or customers. But you still get the kick of owning -- or influencing -- important institutions.

And it's all done through what Wolfe calls "the electric doughnut" -- the telephone: "One fine day, in a fit of euphoria, after he had picked up the telephone and taken an order for zero-coupon bonds that had brought him a $50,000 commission, just like that, this very phrase bubbled up into his brain . . . . Masters of the Universe."

But, of course, McCoy and all the other players are about as masterful as little plastic dolls -- and they know it. No one -- not Robert Prechter or George Soros or Michael Steinhardt or whichever genius of the month is plastered on the cover of Fortune -- can tell the future. In a rising market, everyone is brilliant. And everyone knows, deep down, that it's all a sham.

It's that knowledge -- that America's prosperity is a house built of straw -- that makes the market so pathetically fragile. And this is what scared me the most about my Boesky experience. Because of the alienation between business and finance (like the alienation between the magazine and our evaluation of it), Oct. 19 could easily happen again -- and for reasons that have nothing to do with the budget deficit or the weak dollar. It was Lord Keynes (who made a fortune as an investor) who first articulated the separation of the stock market from the greater economy. That separation has become greater over the past 50 years. What moves stock prices are waves of solipsistic enthusiasm and despair that sometimes turn into panics of buying and selling.

The reason that the market remains vulnerable today is that Wall Street players aren't ignorant boosters. They're smart, and what was in the back of their minds on the day of the crash is still there: that something is wrong with the system that's made them rich, that's bought them $3 million apartments and all the truffled angel-hair pasta they can eat.

The power of greed pales before the power of ideas, and the most powerful idea of the past decade is that debt can be used to gain control of billion-dollar coporations.

It began with the high inflation and high interest rates of the '70s and with a clever method for coping with these frightening conditions: the money-market fund. An investment firm would sell shares in a pool of assets, usually loans to large banks. In effect, small investors could own pieces of certificates of deposit that would earn more than their own deposits in banks could earn. And so, the train of events began . . .

Banks and savings-and-loan associations were limited in the interest they could pay depositors by "Regulation Q," a long-standing Federal Reserve directive. With the advent of money-market funds, deposits (quite naturally) began flowing out of banks and S & Ls and into higher-yielding investments. Some institutions faced a severe cash crunch.

To avert disaster, Congress in 1980 passed the Depository Institutions Deregulation Act, based on the sentiment that "all depositors, and particularly those with modest savings, are entitled to receive a market rate of return on their savings." The act phased out interest ceilings over a six-year period. Reg Q was dead, and the financial world was changed forever.

Reg Q, in normal times, had been more a boon than a burden to banks. It meant that they did not have to compete with each other for deposits on the same terms that other businesses competed -- that is, on price. Cash, in the form of deposits, is the raw material of banking. And Reg Q held down the price of that raw material.

With Reg Q gone, banks found themselves paying more for deposits and needing to make up those higher costs with higher revenues. So they made more aggressive loans, including loans to individuals and companies that wanted to take over other companies.

Suddenly, the borrower, not the lender, was king. Suddenly, you could borrow practically anything to buy practically anything.

Some of the Masters of the Universe gorged themselves on what Wolfe calls "the golden crumbs" that fall off when the cake is passed around. Other Masters did even better.

The best idea of all was junk bonds, invented (or at least best put to use) by Michael Milken of the Los Angeles office of Drexel Burnham Lambert. If Mr. A wanted to take over Company B, he could pay for the acquisition by issuing I.O.U.s, or bonds, which would be repaid over the years out of Company B's profits, or out of the proceeds from the sale of some of Company B's subsidiaries. The result was that Mr. A could own -- not just manage but actually own -- Company B without spending a nickel, excpet to pay the facilitators of the arrangement, such as Mike Milken.

And, with economic times accommodating, these I.O.Us, belying their tag "junk bonds," became excellent investments.

Armed with the power of Milken's idea, the Boeskys and the Icahns and the Trumps began buying things -- or threatening to buy them. They could own big institutions: TWA, CBS . . . . Anyone could own anything! Given a place to stand, like Archimedes, you could do a leveraged buyout of the whole world.

The final effect of the junk-bond revolution was to increase even further the distance between the financial and corporate worlds. Corporations, these huge and humming institutions were reduced to mere things, objects of Carl Icahn's fancy, acquisitions -- even if they werent bought. They lost their traditions, their moral authority, their mythic proportions. It all became cash flows and multiples.

This is not to say that these instituions shouldn't be up for sale. The pressure that corporate raiders put on flabby companies forces them to shape up or get taken over, and that kind of market discipline is good for the companies and good for the economy.

Still, despite the ameliorative effects, something is being lost here. And you don't have to be a hopeless sentimentalist to be worried. In "Greed and Glory on Wall Street," Ken Auletta described the implications of the sale of Lehman Brothers, the old-line investment firm, to Shearson/American Express: "The death of Lehman signals the passing of a way of life -- of a handshake as solid as a contract, of a mutual loyalty between client and banker, of fierce but respectful competition, of a belief in something larger than self -- in this case, The Firm."

Institutions like Lehman Brothers -- and other important partnerships and corporations -- are repositories of tradition and morality. The Masters of the Universe, the deal-oriented players who have held sway over coporations, are not. The loss of the moral authority of corporations is serious -- to the culture, and, I think, to the economy as well.

A piece by Art Kleiner last November in the New York Times Magazine described the sale of Ted Bates Worldwide, the huge advertising agency, to Saatchi & Saatchi, the British conglomerate. It told much the same story as Auletta's book. The article ends with Robert Jacoby, the former CEO of Bates, saying wistfully, "Clients were partners at one time; they trusted us. They lost that somewhere along the line. And the warmth went out of the business."

The warmth is gone because the business itself is no longer as important as the process of acquiring it. The money and the thrill are in the transaction, not in the managing or producing.

"I don't do it for the money," writes Donald Trump at the beginning of his replusive new book, "Trump: The Art of the Deal." "I've got enough, much more than I'll ever need. I do it to do it."

Trump is telling us he's the businessman as existentialist. He's cool. He doesn't really care so much about the company or the project. He cares about the deal. He does it to do it, like a romantic killer out of Camus.

Doing it to do it is the style of the 80s. Boesky was that way. Read the takeover literature, those books about the fights for Martin Marietta and Walt Disney. The chase became an end in itself, an incredible exhilaration. The hunters could barely remember what they were hunting.

As long as this existential financial activity only involved making bets on which way the price of a stock would go -- passing around pieces of paper -- not much harm was done. But when doing it to do it meant buying whole companies with living people inside, it became another matter.

George Gilder, the supply-side theologian, wrote in his 1981 book "Wealth and Poverty" that he was perplexed that, despite the decline of socialism around the world, capitalism had failed "to win a corresponding triumph." He shouldn't have been surprised. Not even its staunchest adherents (including Gilder) have managed to give capitalism -- or, more precisely, the market mechanism -- a moral authority.

Despite Gordon Gekko's contention, capitalist morality does not reside in markets driven by greed. It resides in the companies and partnerships and corporations themselves -- in the way they treat their employees and their communities, in the goods they produce, in the values they represent.

The values of society's producers, in short, are more important and more lasting than those of its financiers and traders.

The problem is in the process. It's entertaining, certainly -- and it's stimulating intellectually, but it's also sick. And when stock prices start dropping again, they may go into a prolonged free fall, with no moral or rational foundation to hold them up.