I don’t suppose you’ve thought much about sausages lately. You should, sausages can be very instructive.

Many people buy supermarket sausages, but most of us prefer not to know what’s in them.

Put them in a pan and the aroma is so lip-smackingly enticing we would forgive our butchers almost anything. The smell arises from a cleverly assembled mixture of herbs and spices designed by food technologists to whet our appetities and taste buds before we’ve even bitten into the succulent pink objects they create for us. In food terms they really are masters of the universe.

If, however, we decide to delve into the innards of these encased and elongated meatballs, we get a completely different picture. For the contents are blended into a reddish goo in which excessive fat is made palatable by chemicals called emulsifiers. The meat itself is sliced and diced from every part of an animal’s carcass, including the bits we don’t normally talk about. If you think you’ve never eaten eyes or testicles or intestinal matter, think on, they are there on your breakfast plate every morning.

The point I’m making — somewhat ellipically — is that most of the old financial system is a dog’s breakfast.

Derivatives in particular, especially asset-backed structured vehicles (what a mouthful for a packet of sausages) bear a great deal of similarity to their culinary equivalents. The minced mush is largely made up of bits of sub-prime mortgages squashed together with a few half-decent ones. The alluring aroma is added by the blue-chip rating agencies, while the packaging is designed by investment bankers — who paradoxically have now almost ceased to exist.

Who would have thought that in 2008 we could make a credible comparison between sausage-makers and the high-flying gadabouts of the celestial world of brokerage and financing.

Today we hear that the two surviving giant American investment banks, Goldman Sachs and Morgan Stanley, have turned themselves into “holding banks”, which will allow them to beg on the streets for any deposits we the people may have remaining after their Attila the Hun rampage through our domestic balance sheets. They will also gain access to Government funds designed to bail out the banks.

In common parlance, Goldman and Morgan and the other stricken titans are signing on the dole.

Of course, most of the movers and shakers have already salted away their massive bonuses and are probably even now relaxing with a cocktail or two on their yachts in Monte Carlo harbour.

They have left us with a colossal mountain to climb. In the UK, house prices have a further 25-30 percent to fall, according to Roger Bootle, and already Britain’s largest mortgage lender, HBOS, has failed. How many other banks will go before we hit bottom?

Who, then, are the people that created this vastly complex set of financial instruments based on the always-temporary phenomenon of rapidly-rising asset prices? And who were their managers who let them do it?

It appears that a large number of them are alumni of the Harvard Business School, even those working in Britain and Europe. President Bush is one of them. British PM Gordon Brown has surrounded himself with such types for more than a decade.

U.S. Treasury Secretary, Henry Paulson, once CEO of Goldman Sachs, is a member of this esoteric band of brothers. Not surprisingly, his main effort currently is to package up all the bad debts of the banking sector into one giant sausage and dump it into the arms of the taxpayer. Not only have the public been fleeced by the Harvard Templars, they have to pay off their debts as well.

Unfair though that may seem I’m aware that it is probably the only way to save world financial markets. The “flight to safety” from U.S Treasury funds mid-week was the Crack of Doom approaching at violent speed. A dollar default was much nearer than any of us imagined.

Here’s a suggestion to the politicians working on better regulation for the City of London, Wall Street and Frankfurt. Item one in the new schedule: Never employ anyone with an MBA from Harvard.

Have a nice lunch. It won’t come free. Avoid the sausages.

I’m probably not alone in noticing a sharp decline in revenues from standard business activities on the internet — whether that’s from advertising, affiliate sales, or direct selling of products and services.

All the weather vanes are swinging south and, with forecasts that the credit crunch could last for two more years, may stay that way for some time.

How can we buck this trend and not only hold our own, but actually come out ahead? We should look at professional investors, especially the big, successful ones.

The Warren Buffetts and George Soros’s of this world build large cash reserves during bull markets. Buffett has a war chest of tens of billions of dollars and is looking seriously at Britain and Europe for bargain buys during the downturn. There are plenty of them.

For those of us with more modest resources, Soros perhaps is a better example. He it was who sold sterling “short” during the currency crisis of 1992. He is reported to have earned over a billion dollars in a few weeks.

Effectively he bet against the pound’s ability to remain in the European tied currency system — then called “the snake” or ERM — in the face of massive speculation against it.

He was right and did Britain a huge favour by scuppering the crazy political experiment. We owe it to him that the UK is not in the single currency, the eurozone, right now.

So what is “short selling” and how might it benefit internet businesses?

When you “buy long” on a stock or investment, it means buying it for an expected increase in price. But when you go short, you are anticipating a fall.

Short selling is also the selling of a stock that the seller doesn’t own. When you short sell a stock, your broker will lend it to you. The stock may come from the firm’s own inventory, from one of its clients, or from another brokerage firm. The shares are then sold and the proceeds credited to your account.

Now here’s the rub. At some point you must cover the short by buying back the shares and returning them to the broker. If, as you’ve gambled, the price drops, you can purchase them at a lower price and pocket the difference, minus brokerage fees. For example, if you could have predicted the ups and downs of the Microsoft-Yahoo skirmishes recently, you would have cleaned up.

Of course, if the price rises, you lose. Essentially this is about winning in a falling market. With money currently chasing every store of value, like gold, oil and certain other commodities, funds are draining away from many assets and valuations are falling — just look at your house price.

Talking to a trusted broker about short selling may well be a way to replace lost sales in medium-sized internet businesses. With falling markets set to continue, turning logic on its head may be the only way to stay afloat if things get really bad.

Any investment takes a lot of nerve of course — and single-mindedness. A few months ago I was intent on going long on gold. However, another call on my cash intervened and I forfeited the many thousands of dollars I might have made on the spectacular rise in the gold price to around $1000 an ounce.

Going short is one way to survive in a falling market. As sailors say, “any port in a storm.”

Note: This post is not intended as investment advice or to influence your investment choices in any way.