Say it ain't so, Scott.

Most of us who believe that Washington should get out of the way of the economy were thrilled in January when Republican Scott Brown pulled an upset win and took Teddy Kennedy's Senate seat. But now Brown has betrayed us.

He was the swing vote who made it possible Thursday for Senate Democrats to pass a financial regulation bill that pretty much hands control of the banking industry over to government.

To add insult to injury, as recently as Wednesday, Brown said in a statement that it was "a flawed bill." So why did he go over to the dark side and help them pass it?

It wasn't so long ago that we who favor free markets thought that Brown's election was a harbinger for a Republican takeover of the House, and maybe the Senate too, this November. But with this week's elections around the country that hope is off the table. The killer was when Republicans failed to win the special election for the House seat of the late John Murtha (D., Pa.).

The GOP establishment is trying to put the best face on it. It says that the Democrat who won Murtha's seat ran on an anti-Obama platform. And it claims that elections around the country showed an anti-incumbent bias. But I don't see how the special election for Murtha's seat shows that. After all, the incumbent was dead.

But it doesn't matter anyway. Brain-dead Republicans are no better for the economy and the markets than brain-dead Democrats. Scott Brown proved that this week.

No wonder stocks are finally in a real correction. The panic in Europe has proven that we're still very much in the midst of an ongoing global credit crisis. And now the United States, the one country strong enough to pull the whole world out of it, is about to cripple its credit industry -- with an assist from Scott Brown.

The financial regulation legislation being put forward by Senate and House Democrats will be a catastrophe because it puts the entire U.S. banking and credit industry under arbitrary government control. For example, it gives the government power to declare any company to be subject to federal regulation if it's found to pose a systemic risk to the economy. So take the case of Microsoft (MSFT) . It's not even a financial company. But it controls a ton of cash, $37 billion to be exact. It actively invests all that cash in the money market -- the same money market that provides short-term funding for banks and brokers. So some day Microsoft could be declared "systemic" -- and subjected to tons of new regulation.

What regulation exactly? Well, the problem is that the bill doesn't really quite say. It gives government the opportunity to pretty much make it up as it goes along.

For example, if Microsoft were found to be "systemic," then under the new regulations the government could order the company to break itself up. After all, if it's "too big to fail," then it's "too big." It doesn't matter that Microsoft is completely healthy, financially. If the regulators decide it's too big, it can be cut down to size.

Does that ring a bell? You might remember 10 years ago the government tried to break up Microsoft on antitrust grounds, finding it to be an abusive monopoly. The government had to take Microsoft to court to do that, and Microsoft won. The company stayed in one piece.

But under the new regulations, the government wouldn t have to take Microsoft to court. It would just announce the break-up order, and that would be that. Microsoft would be split into as many pieces as some bureaucrat found advisable. And under the law, Microsoft would have no opportunity for judicial appeal.

I've been using Microsoft as an example, because the idea of declaring Microsoft to be a systemic financial firm, and then breaking it up, is so utterly absurd. But the same thing could much more easily happen to Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, JP Morgan, Wells Fargo -- or anyone else.

That's a lot of arbitrary power for government to have, especially when many of these banking firms have such powerful influence in government. For example, Goldman Sachs people have held many enormously influential government positions. Former Treasury Secretary Henry Paulson was a former Goldman CEO, for example. Do we really want ex-Goldman people in government with life-and-death power over Morgan Stanley? Or vice versa?

For that matter, do we really want government controlling our financial institutions? Telling them what they can do, can't do, and must do? Seems to me that we tried that, and it failed. Remember Fannie Mae and Freddie Mac?

That's what happens when politics controls credit.

This is the kind of thing that's going to keep America and the world from ever really getting out of the Great Recession of 2008 and 2009. Sure, the recession is over. The economy has stopped going down. But with government taking over the most essential growth drivers of the economy -- first health care, and now banking -- where is the growth going to come from?

So we live in a world of a strange duality. The heavy dead hand of government is going to keep the economy from really growing. But at the same time, the government is evidently committed to an endless series of stimulus plans and bailouts, here and around the world. So while the economy can't really fly, it can't really sink either.

There's an investment strategy in there somewhere. Seems like the smart thing to do is to sell every rally (because real growth is impossible now), and buy every dip (because a real collapse won't be permitted). So now with stock markets around the world in a serious correction, I'm looking for a chance to buy the dip. Not sure of the timing, but that's the next move