Party like it's 1929

I met a traveller from an antique land
Who said: "Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
'My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away."
— Percy Bysshe Shelley, Ozymandias

Controlled panic is what it looks like so far.

And that's not bad, considering. Over the weekend, two U.S. financial colossi crumbled. Merrill Lynch was acquired by Bank of America in a deal that looks suspiciously like a shotgun wedding: B of A appears to have paid well over the odds. You have to think that the government cut a shady deal involving some kind of whispered "guarantees" to B of A.

At the same time, Lehman Brothers, the 158-year-old investment bank and an A-list name in U.S. financial institutions, declared bankruptcy because no one was willing to buy it. And insurance giant AIG is reportedly paddling furiously against the current as it approaches Niagara Falls.

The Big Blow-Up has begun. It's the inevitable product of decades of an economy based on consumer credit in lieu of genuine prosperity, of institutions from the Treasury to the Fed to the banking system putting the credit pedal to the metal, calling for stronger wine and madder music, building to a demented crescendo like Ravel's Bolero.

Now that it's breaking down, the federales are desperately trying to keep it from crashing all at once and touching off a worldwide depression. Having served for so long as the industry's drug dealer, they are now hustling the patient off to the sanitarium while telling everyone who asks that the economy is resting while it recovers from stress, thank you for your concern.

The good news is that a few more big players will soon be extinct volcanoes. Washington Mutual is probably next. It wouldn't surprise me if Citigroup is being measured for the coffin. Why is that good news? Because it's better to pump the country's stomach and get the poison out. The national gag reflex needs a workout, and it's going to get one. Then, maybe, we can rebuild the economy on a saner, more austere basis — if citizens and, equally important, our politicians can resist the impulse to start a new round of borrowing and spending.

But first, this is going to be a dramatic week, or several weeks. Today is only the curtain raiser. It is not time to go bottom fishing because we have not touched bottom. In my opinion, it's still better to play defense. Shorting and buying puts are only for very experienced and sophisticated investors (I don't consider myself savvy enough to do either, except that I have a position in the ultra-short financials exchange-traded fund SKF), but anyone can sell and go to cash. You don't make money that way, but you don't lose (except to inflation).

As one of our very smart ancestors said, "Keep your powder dry, and don't fire until you see the whites of their eyes."

Disclaimer: I have no qualifications as a financial advisor and could be wrong.