Think you’ve got trouble? Today is a public holiday in France. It marks the occasion when the mob rose up and broke into the Bastille, liberating a couple of half-wits and social deviants. It was only a small chimney fire in historical terms. But soon, the whole country was on fire.

The French should have realized right away that the Revolution would be more trouble than it was worth. A few years later, France was broke...at war...and her leading citizens were siding with the enemy. Not only that, hundreds of thousands were dying from small pox.

But that is the trouble with history; there’s no way to back up. And you never end up where you expected to go.

More about the French Revolution...below.

Meanwhile, we have our own troubles to reckon with. And again...there’s no backing up.

Now getting hot is the war between inflation and deflation. Both sides launched major attacks at the end of last week.

Fannie, Freddie – Finito

Yes, the dark twins of mortgage finance dominated the news over the weekend. Every financial page covered the story. One story reported that the government was mounting a rescue operation. Another said the Fed had opened its discount window to them. Another had the U.S. Treasury Secretary denying that they needed any extraordinary assistance. Still another explained how they got into such a mess.

Of course, here at The Daily Reckoning we know how they got themselves into such a jamb. They lent money to people who couldn’t pay it back. And they weren’t the only ones.

“Crisis Deepens as Big Bank Fails,” adds the Wall Street Journal . The big bank is IndyMac. It is the largest bank failure since Continental Illinois bit the dust in ’84. Much of the depositors’ money is protected by FDIC insurance. But there’s still $1 billion uninsured. And, of course, FDIC can’t bail out everyone; it only has so much money.

“Analysts say more banks could fail,” reports the International Herald Tribune .

FDIC can bail out a few of these banks...but not all of them. And there is no way it can bail out Fannie and Freddie. Together, the twins have more than $5 trillion in liabilities. That’s more than a third of US GDP. And former Fed governor William Poole says they’re broke already.

Investors are still holding on – barely. Fannie’s shares fell to $10.25 on Friday. Freddie was down to $7.75 – for a total loss of 87% from the peak. (We previously reported that the share had traded as high as $60. Actually, the high was closer to $100. Sometimes we get the facts wrong, here at The Daily Reckoning . But it’s the interpretation of the erroneous facts that matters; of course, we get that wrong too, sometimes.)

Fannie and Freddie are “too big to fail,” no doubt about it. But who has the money to stop them from failing? Where are those Sovereign Wealth Funds when you really need them? We doubt whether they are stupid enough to do it, but what a coup it would be! We mean, if the Sovereign Wealth Funds recapitalized America’s largest mortgage lenders. So far, they’ve contented themselves with a few minor purchases of America’s iconic buildings, infrastructure and industries. But if they bought control of Fannie and Freddie, they would hold the mortgage on America’s housing too. And they could get rid of trillions of their unwanted dollars. (Foreign central banks already hold large pieces of Fannie and Freddie’s debt.)

But for the moment, the bailout looks like it will come from homegrown sources. Ben Bernanke called on Freddie’s CEO over the weekend. It is believed that the Fed chairman let it be known that its discount window would be opened a bit wider today – wide enough to lend directly to Fannie and Freddie. This will give them access to money at a preferential rate – about half the rate of consumer price inflation. You’d think you could make a fortune – if you could borrow so cheaply. In “normal” times, it would be a cinch. But in wartime, it’s hard to make money – even when lenders give you credit at no cost. No matter where you put the cash, it’s always in danger of getting blown up.

*** It is a good time to neither a borrower nor a lender be. And a bad time to be an investor.

All the world’s stock exchanges are now officially in bear markets. England was the last one to cross the 20% line. “FTSE officially bear market,” reported the Financial Times over the weekend – stocks are down 22% from their October high.

Investment gurus and Wall Street shills tell us that this is a great opportunity. They think they see a bottom.

But bottoms do not come along every day. There have only been four major bottoms in the last 108 years says the Financial Times – ’21, ’32, ’49 and ’82. A couple important points – the closest two were 11 years apart. The last two were separated by 33 years. Also, major bottoms don’t happen at the beginning of a recession; they happen at the end of one...when an economy is ready for another big growth spurt.

Nor do they happen when stocks are still relatively expensive – as they are now. They happen when they are cheap...when they sell for 5 to 8 times earnings, not 10 to 15 times. They also tend to happen when the Dow and the price of gold are getting close to a one-to-one relationship. Just before the ’82 bottom, for example, you could buy the entire Dow for a single ounce of gold. Now, it takes nearly 12 ounces.

Most important, a real, major bottom doesn’t happen when you’re looking for it. It comes after you’ve given up...when investors have lost interest in stocks. You may recall a notorious cover from Business Week in the summer of ’82: “The Death of Equities.” No one was expecting a bottom; they thought stocks were dead.

Our guess is that we are still in the bear market than began in January of 2000. After 2002, the biggest, most reckless expansion of credit in history produced one of the greatest bear market corrections in history. Even so, stocks in the United States never hit new highs in terms of gold, or oil, or inflation-adjusted dollars. And now they’re headed down again – even in nominal terms.

Yes, there’s a bottom ahead. You’ll be able to see it coming...after you’ve forgotten to look.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.