You’ve heard about Nero fiddling while Rome burned, but what if he had been playing golf? Something of that sort occurred this summer as Wall Street spiraled into loss and hysteria. The Wall Street Journal discovered this: “A crisis at Bear Stearns Cos. this summer came to a head in July. Two Bear hedge funds were hemorrhaging value. Investors were clamoring to get their money back. Lenders to the funds were demanding more collateral. Eventually, both funds collapsed.”

But “during 10 critical days of this crisis–one of the worst in the securities firm’s 84-year history–Bear’s chief executive [James Cayne] wasn’t near his Wall Street office…. In summer weeks, he typically left the office on Thursday afternoon and spent Friday at his New Jersey golf club, out of touch for stretches…. In the critical month of July, he spent 10 of the 21 workdays out of the office, either at the bridge event or golfing, according to golf, bridge and hotel records.”

Cayne is not the only CEO who is big enough not to let gigantic losses to his business distract him from his golf game. Stanley O’Neal at Merrill Lynch (losses of more than $8 billion) was also out on the greens, devoting himself to the game that is fast coming to be as much of a symbol of oligarchic excess as executive yachts and the private jets.

Virtually every major bank, brokerage and investment house in the United States and Europe is looking at the possibility of multibillion-dollar losses. Nobody knows how much. Even now the questions that have hung over the universe of subprime and kindred mortgages and loans for the past two or three years still hang in the air.

Exactly how stinky these loans are, how much was paid out for them, how much was borrowed, who owns them, what happened to them–these questions have not yet been publicly resolved. The banks and other Wall Street institutions may know and may not be telling for fear that if the facts got out, it would look as though they were on the ropes or even bankrupt. Or they may not know themselves, strange as that may seem to those of us who are compelled by circumstances to account for each and every one of our dollars.

In the hectic high noon of subprime borrowing it has become obvious that nobody was scrutinizing these bits of paper. In fact the prospective profits on them seemed to be so big that a close look would have spoiled the party. From the local real estate dealers, appraisers and mortgage brokers on up, everybody was making these loans by the tens of thousands and asking no questions.

What we know for a certainty is that the mortgages were packaged by the big banks and investment houses in many different ways, then chopped up and sold as bonds of various kinds, some high-risk, with commensurate interest rates, and some low-risk. We now know that billions of dollars worth of those bonds were sold and billions were retained by the banks, which either put them in their vaults or used them to play complicated games that would make it look as though they weren’t on the books and the banks had no responsibility for them.

As home buyers with subprime mortgages began to fail in their monthly payments and it became clear to investors that bonds might not be worth as much as their asking price, buyers began to beg off. With the rising defaults, would-be bond purchasers disappeared.

The market for such investments did not slump: it vanished. There was no market that banks and investment houses, which have to issue statements of their financial condition, could use to evaluate all that paper they have in their vaults. Instead, they ordered up their quants (math PhDs from places like MIT) to make a computer model that would pretend there was a market, so banks could continue to price the bonds.

When that made no sense, everybody fell to guessing–hence the announcements of multibillion-dollar “write downs,” or losses, which come with warnings that there may be even more losses.

So now we have waves of hysteria washing across Wall Street with guesses, estimates, predictions and lamentations. Wall Street has misplaced a key quality that makes the business world workable. It has lost faith and optimism.

But all is not over; all is not worthless. If hundreds of thousands of subprimes are in trouble, there are millions of mortgages that are being paid on time. They too are packaged in the presently unsaleable bonds, and in due course it is going to dawn on the people who trade in this kind of paper that it does have value.

In response to the mess they’ve made, CEOs of the big institutions are pulling off their plaid trousers and temporarily deserting the golf links to meet and try to put together an emergency $ 100 billion kitty to breathe life back into this market, though most of them are so suspicious and greedy they may not be able to act in unison.

As a last resort the government could start buying the bonds. It did something like that when the nation’s savings and loan associations collapsed twenty-seven years ago. That rescue operation cost the taxpayers shocking amounts of money, as an assortment of low-life businessmen stole the country blind. But the job got done.

One way or another the job will get done again, but it won’t be cheap. And the rest of us can bank on getting robbed while they do it.