The mobs are forming...

Give the sans-culottes a chance...and they'll turn violent. So far, two bosses have been held hostage in France. Employees wanted something the bosses either couldn't or wouldn't give.

In England, the yahoos attacked poor Sir Fred Goodwin's house. Fred ran the Royal Bank of Scotland into the ground; you'd think the rabble would be delighted.

In America, meanwhile, they organize bus tours to gawk at AIG executives' houses...and howl for blood. Apologize, resign...or commit suicide, suggested Senator Grassley.

"The corporate security business is booming," says the International Herald Tribune.

Until now, the whole bonus/executive pay/bailout spectacle was just an amusing diversion - diverting the public's attention with a trifling few million dollars, while the feds picked their pickets for trillions. But now, it's turning ugly.

Our guess is that the blood will flow...but later. It's still fairly early in the correction. Investors have lost money - lots of it. Homeowners have lost their homes. Working stiffs and Wall Street sharpies have both lost their jobs. But the violence-prone yahoos still expect something for nothing. The bailout plans will work, they believe. The government will step in and save them. They haven't figured out that the government's bailouts are just making their situation worse.

Today's International Herald Tribune tells that "shanty-towns" are beginning to appear throughout the United States. People are setting up tent communities...shacks...and Rio-style favelas - in America. The paper shows a photo of a group of tents under a California freeway. It's not hard to understand why. Many families live paycheck to paycheck...just one week ahead of the rent payments. If the paychecks stop - even for a short time - they're in trouble.

When credit is expanding, jobs are plentiful and credit is willing. Lose a job and you can always get another. And you can fill in the gap in your budget with credit cards. But that was then...this is now. Advertise a job opening now and you're likely to get hundreds of applicants. And not only is it harder to get a job...it's harder to get a line of credit too. And even people who still have credit are more reluctant to use it. They know where that leads; many would prefer to live under a highway than to run up more debt.

A big change in attitude has taken place. People used to think that whatever they needed, they could get it 'just in time.' That's why we have 24-7 liquor stores, all-night convenience shops and cash machines on every street corner. But something has gone wrong with the 'just in time' system. The cash machines aren't as yielding as they used to be. Neither is the housing market. Or the job market. Sometimes, they just say no.

Now, people want a little cash in their pocket...just in case.

But what do we know? We missed the whole credit cycle. When we were young and in need of credit, the banks were still smart enough not to lend to us. When we got older, we were smart enough not to borrow.

But pity people about 20 years younger than we are. They were just starting out...having children...buying houses...at a time when the banks had lost their minds. Credit was as easy to get as a social disease. Now, the debt is even harder to get rid of. Old people...and young people...tend to have little debt. It's the people in between who are hurting.

But enough rambling...

Everyone's looking for the recovery. The commentators think they see signs of it everywhere. Commodities are rising. Stocks are going up. Even houses are said to be selling better than they were a few weeks ago.

"Risk appetite grows on hope US is near bottom," says the FT today.

The Dow rose 174 points yesterday. Oil, the dollar, and gold moved little.

Maybe you should stop reading here...before we get to the 'rest of the story'...

GM says 7,500 hourly workers have left the company. Jobless claims sent another record - the 9th one in a row. There are now more people getting benefits than any time since 1967.

And what's going on in the bond market?

"Weak demand at Treasury auction gives Wall Street pause," says an article at the New York Times.

And in England, an auction of government bonds "failed" - buyers didn't show up.

If the government can't finance its debt, how will it pay for its bailouts? Oh, never mind...we forgot; the Fed will lend the government the money. Where will the Fed get the money? Oh, never mind...

Meanwhile, the corporate bond market is still expecting a Great Depression...

"Investment grade corporate bond indices are [still] priced for default rates of 38% in Europe; 40% in the US; and 51% in the UK - all worse than the Depression," writes John Authers in today's Financial Times. Bank lending is the target of all these recent operations, he points out.

Stocks are going up. But corporate debt is still priced "on the assumption of absolute disaster," says Authers. Someone's got to be wrong: either stock market investors...or the bond market. "Either the credit market is so illiquid that these numbers bear no relation to the outcomes that investors expect; or we are in for a re-run of the Depression."

Naturally, we don't know which it is. We are incurable optimists here at The Daily Reckoning. Let the markets work...they'll straighten things out. In the meantime, we keep our Crash Alert flags unfurled...just in case.

And finally, Alan Greenspan is in the news today. He has a major work of obfuscation in today's Financial Times, the gist of which is the same as his previous pieces. "It's not my fault," is the message.

In a sense, he is right. The free markets are full of boom and bust, sturm and drang, yin and yang. Free markets also create prosperity, he points out. And if bubbles are the price we pay, well...it's worth it.

"I do not recall bubbles emerging in the former Soviet Union," he says.

Yes, bubbles will always be with us, dear reader. But that is no excuse for a Federal Reserve chairman who pumped extra air into the already bubbling economy.

Poor Dr. Greenspan. The more he tries to defend himself...the more guilty he appears. And now he must shuffle out the end of his days...an empty coat upon a stick...with the curse of the biggest financial crisis in history upon his wrinkly, old head.

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