Batten down the hatches.  A major recession is coming.

The bailout was finally approved at the end of last week and there were no joyous celebrations or pats on the back for a job well done.  Instead was the blunt reality of an economy that is essentially experiencing a lobotomy of extraordinary size and scope. (See also: "Bailout Approved. What’s Next?")

Entire sections of our economy are being removed at breakneck pace.  Printing money as the government and central bank are now doing in a coordinated effort may restore confidence, but only in the way a doctors scramble to treat a patient in a triage unit.

Stop one problem only to face another.  Where it ends is anyone’s guess, but there is one thing that we can be sure of and that is the collateral damage to the economy will be severe.

Is anyone else frightened by the ineptitude of our leaders during this crisis?  It hardly seems that anyone really knows what is transpiring, and the fact is they don’t.  The statements from the halls of Congress last week were hardly comforting.

One of the most common justifications for the passing the bailout bill from both sides off the aisle was a fear that failure to do so would result in a significant collapse in stock values.

With trillions of retirement dollars at stake, legislators figured spending a cool $700 billion would be the lesser of two evils.

The question I have is when did Congress become so prescient at predicting market direction?  How would they know if stocks would fall if they failed to pass a bill?  They have no clue, and to pretend they do is ignorant.

It would be one thing if there was discussion about valuations and the impact of the bailout on credit markets and future earnings, but there was none of that for obvious reasons.  They simply don’t know the full impact. (See also: "How to Keep Your Money Out of Harm’s Way.")

The conclusion regarding the stock market then was that in some unknown way the bailout would allow stocks to form a base of value that would then gain in value once a bailout was announced.

Retirement portfolios would be saved, but it is not that simple. Investing in stocks involves risk, substantial risk.  There is no such thing as a guarantee that stocks will go up in value or that principle is guaranteed even with a government bailout of this magnitude. (See also: "3 Tips to Protect Your Retirement.")

It was not that long ago that people believed housing prices would never go down.  Home values always go up, and you could depend on your equity to augment income or provide for retirement never having to worry about lower prices.

Even I conservatively assume 5% appreciation per year on my home I make out like a bandit. I’m not taking risk, I’m being conservative.  Yeah, right!

That works fine and dandy until home prices start to drop.  The funny thing is that most people feel like it is a right to have home prices that only go up in value.  We know now that such a belief was merely fantasy.

Home values can, and do, go down and down hard in some cases.

Now we hear the same thing with stocks. 

>

We cannot let prices go down—no matter the cost.  Calls asking for support of the deal came from citizens that did not want to see their 401(k) or IRA portfolios go down in value.

As a result, Congressmen and women voted against conscience and approved the bailout with little argument.  Talk about the blind leading the blind.

While I am all for stocks going up in value, I understand full well that prices go up and prices go down.  It comes with the territory.  There is no guarantee that my portfolio will make money.

Attempting to prevent stocks from dropping in value with legislation is akin to communism, plain and simple.  Thus, it should not be celebrated that the bailout plan passed.  The reasons for doing so would have our founding fathers rolling in their graves.

So Now What Is An Investor To Do?

You should not assume that just because the bailout is in place that stocks will go up in value.  As was expected the market collapsed in the hour or two of trading that remained after passage on Friday.

Given the complexity of the crisis and the real lack of understanding thereof, stock values should decline.  Prices are based on a discounting of future cash flows.  If the risk increases and the dependability of those cash flows decreases stock values must decline.

Why on earth would you risk capital in such an uncertain environment?  You wouldn’t and you shouldn’t.  From that perspective, without even taking into account almost certain declines in future corporate profits, stocks are too expensive.

No amount of wishing or hoping will make it any other way.  That is why it was silly to hear legislators state that they gave support to the bailout in order to save Main Street retirement accounts.

They did no such thing.

The only thing that can be done now is to keep your powder dry and don’t deploy that capital until you are presented with a deal that you cannot refuse.  Think Warren Buffett and his preferred stock deals of late and note that he is not buying common stock!

You should do the same.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.