In case you weren’t sure, the economy is a little unstable at the moment. One that all the golden parachutes in the world isn’t going to fix.

But that’s not how it works. The ongoing bailout of the financial system by the Federal Reserve underscores the extent to which financial barons socialize the costs of private bets gone bad. Not a week goes by that the Fed doesn’t inaugurate a new way to provide liquidity — meaning money — to the financial system. Bear Stearns isn’t enormous. It doesn’t take deposits from the public. Yet the Fed believed that letting it implode could unleash a domino effect among other banks, and the Fed provided a $30 billion guarantee for JPMorgan to snap it up.

Compared to the cold shoulder given to struggling homeowners, the cash and attention lavished by the government on the nation’s financial titans provides telling insight into the priorities of the Bush administration. It’s not simply a matter of fairness, though. The Fed is probably right to be doing all it can think of to avoid worse damage than the economy is already suffering. But if the objective is to encourage prudent banking and keep Wall Street’s wizards from periodically driving financial markets over the cliff, it is imperative to devise a remuneration system for bankers that puts more of their skin in the game.

This morning, Krugman managed to encapsulate the feel of all of this in a few sentences:

The financial crisis currently under way is basically an updated version of the wave of bank runs that swept the nation three generations ago. People aren’t pulling cash out of banks to put it in their mattresses — but they’re doing the modern equivalent, pulling their money out of the shadow banking system and putting it into Treasury bills. And the result, now as then, is a vicious circle of financial contraction.

Who gets squeezed in the tightening financial circles of hell? Everyone — even the golden parachute crowd isn’t immune, they just feel it a little less on the front edge of the wave. Stirling had a fantastic piece the other day laying out all the possibilities that is well worth a read to contemplate what we could be seeing long-term. I suppose we can all keep living off the luxury tourist dole until things turn around…but wouldn’t we be better off contemplating just how we got into this mess, and how not to get back into it in the future next time around?

Contrary to the Gordon Gekko philosophy, it seems to me that unchecked greed just keeps getting us all into a world of shit. Isn’t it high time we learned that lesson?

(From Wall Street, YouTube of the "greed is good" speech…)