Bear Stearns, financial Armageddon, and you!

Put on your best breadline-standing-in shoes, because you're going to need them.

I'm no economist, but I am someone with common sense and a good general knowledge of history, and that's enough to allow one to recognize general patterns of economic disaster, if not each and every tiny nuance. So take the following opinions as you will -

This whole thing with Bear Stearns is undoubtedly just the tip of the iceberg of financial ruin facing the United States - and by extension, the world - in the coming weeks/months/years. Actually, I suppose the so-called housing bubble would be the very tip of the iceberg, but there was plenty of argument over who was to blame - mortgage lenders, the Fed, greedy speculators, etc., and not all of it was without merit.

Anyway, in my book Bear Stearns, and other financial crises of recent and soon to come, are to solidification of the Federal Reserve's power what 9/11 was to the solidification of power for the Executive branch, military intelligence, and other scary, now practically omnipotent agencies - that is to say, calculated, planned (or at the very least, foreseen and unprevented) disasters meant to cause chaos and infrastructural crumbling of a given system in order to allow it to be shored up and rebuilt in consolidated, totalitarian fashion which no reasonable citizenry would stand for under ordinary circumstances.

The heavy involvement of The Fed in overseeing the Bear Stearns bail-out is the first troubling sign. But according to the Financial Times and other business journals, there is a strong possibility that The Fed will soon be playing a more permanent role in the regulation of investment banking.

If you are unaware, The Federal Reserve has, since the financial rebuilding of the 1930s, overseen commercial banking, whereas investment banks are overseen by the SEC. Now, granted, the SEC has hardly done anything to prevent hedge fund implosion or other financial crises recently or ever (ie, Michael Milken and the S&L debacle, Enron, and so on), and granted, lowering the number, size, and kinds of risks taken by investment firms to the scale of those undertaken by deposit banks might be a good thing in some ways (for example, perhaps it would have prevented Joe Lewis from throwing a billion dollars at Bear Stearns at the 11th hour, thereby placing Tavistock on board the Bear Stearns Titanic), but do we really want to increase The Fed's power? And ultimately, do we really want the Treasury looking over Wall Street's shoulder? Like I said, I'm not an economist, but I see numberless potential problems there - not the least of which being the United States Treasury Department, an arm of the Presidential cabinet and manager of the public debt, determining how, when, and where private investors can invest their money.

Of course, it seems to me that the number one, overarching problem facing all world finance is "fake money", aka credit. It defies common sense that any institution should be able to issue theoretical money to an individual or another institution - money that does not actually exist, money that has no actual, physical, valuable commodity behind it, such as gold or silver - and then charge actual money in interest in addition to regaining the principle, again in actual money, for the "service"! In a world of finance based on credit, how can you ever hope to combat bogus hedge funds and SPIs or overvaluing of stocks, as Credit Suisse is facing right now?

Credit turns financial institutions into snakes eating their own tails. In boom times, institutions must take their profits and sink them into riskier and riskier ventures for the possibility of higher and higher gains, lest they disappoint their shareholders by not posting higher profits each quarter. Eventually, one or more of those ventures disappears into a puff of smoke, and that financial institution tumbles from the top of the beanstalk. Thus, the investment firm with the most theoretical money today is tomorrow's Bear Stearns, bailing out at $2 a share.

So as a result, here we are in the worst financial crisis since the 30s, as many business journals are calling it, and one sadly reminiscent in the great merry-go-round of history (as most credit crises are) to the South Sea Bubble, which most of us learned about in early high school - a lesson which one would expect the world's great financial minds to heed. Then again, most of the world's great financial minds have golden parachutes (though this was not so for Bear Stearns's management) which allow them to retire to a life of leisure, a life of "oh well, it was fun while it lasted!", while their shareholders are reduced to subsisting upon, say, shoe leather and cabbage.

So what does this mean for you and me, the blue and off-white collar workers of the world? Well, it means basically what it meant for our counterparts in 1929 - kiss your stocks, your theoretical money, and the value of your paper money goodbye. It means hold on to your real assets (land, gold, silver, gems, etc.) like your life depends on it, because it may very well do so, very soon. For those of you without a trade, like me, it means get one quick! It may not help you after all, but it will be more useful than your white collar skills when such things cease to exist for the low-born like us. Most of all, it means don't buy a house, don't take out a loan, don't put your money in an investment bank (or in any bank if you ask me!) - hunker down, hold your real assets, and try wait it out.

That's just one paranoiac's opinion, anyway. I would like to be completely wrong about everything I've just said, but you can bet that I won't be more wrong than George W. or Ben Bernanke when they tell you that everything is going to magically work out just fine - talk about junk bonds!