Mortgage Bailout Latest Blow to Free Markets

THIS WEEKEND'S HISTORIC federal takeover of Freddie Mac (FRE) and Fannie Mae (FNM) is yet another example of the market's only predicable theme of late: bigger government's intrusion, interference and theft.

Intrusion because there's no reason the government needs to be involved in the housing or mortgage markets at all. Private markets have come a long way since Fannie Mae was created back in the 1930s, with billions in nonbank dollars more than willing to invest in borrowers of every risk. Despite its undeserved poor reputation, the truth is that subprime lending permitted thousands of borrowers previously denied credit an opportunity to buy a home. In a free society, individuals are responsible for their own decisions both to borrow and to lend. Why the government needs to be in this business at all is both practically and unconstitutionally unclear.

Interference because, as I've pointed out numerous times in recent months, markets have become virtually impossible to forecast as they are no longer trading on underlying economic realities but arbitrary political whim. From windfall profit taxes to housing bailouts, the government is no longer a referee but the game's central player, moving the pieces and making up the rules as it goes along. The U.S. economy is now being driven by how many times Barney Frank wants his name in the paper and how well Treasury Secretary Hank Paulson slept last night.

Theft because on Sunday, while you were doing the laundry, playing with the kids or driving to the grocery store, the government snuck into your wallet and wrote itself a $200 billion check, secured by your tax dollars, purchasing power and sweat. Indeed, every cent the government spends propping up failing businesses is paid for by the people it's supposedly elected to serve -- in higher taxes and inflation, but also in the missed innovation of businesses not started and products never developed.

What's the future for the economy? Well, we're bailing out investment banks like Bear Stearns and redistributing wealth through the so-called tax rebate. We're nationalizing widespread, trillion-dollar swaths of the economy, just as Vladimir Putin and Hugo Chavez have.

The justification is the collectivist, self-sacrificial philosophy practiced in quasi-Communist Russia, Socialist Venezuela and now both major American political parties.

Your savings will be handed out to homeowners who can't pay their mortgage because, as Sen. Barack Obama (D., Ill.) would point out, "I am my brother's keeper."

And that same savings will be poured into Ponzi schemes like Freddie Mac and Fannie Mae because, as Sen. John McCain (R., Ariz.) would answer sternly, "Country first."

The Dow just might rise on this latest scheme to "fix" a free market. But given the country's total abandonment of free market principles, it's hard to know if you can trust the rallies, which not surprisingly last only as long as the interference, intrusion and theft.

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