Those are some of the scariest words uttered by anyone, especially someone with the air of a bureaucrat, a government ID and a superior attitude that they are entitled to fix your life for you, whether you ask them to or not.

So when the Bush Administration announced this morning that it’s taking control of two mortgage giants in order to “avert the potential for major financial turmoil,” I get an uncomfortable, prickly feeling in my panties (figurative saying, boys, so don’t lose focus and get all fuzzy on me now).

Treasury Secretary Henry Paulson says the historic actions were
being taken because “Fannie Mae and Freddie Mac are so large and so
interwoven in our financial system that a failure of either of them
would cause great turmoil in our financial markets here at home and
around the globe.”

The huge potential liabilities facing each
company, as a result of soaring mortgage defaults, could cost taxpayers
tens of billions of dollars, but Paulson stressed that the financial
impacts if the two companies had been allowed to fail would be far more
serious.

Let’s ignore for a moment that having a gargantuan, money-sucking bureaucracy that is predicted to run a deficit of 2.6 percent of the nation’s gross domestic product (GDP) this year is probably something akin to having a monkey that can’t balance a checkbook rescue the zoo with monopoly money.

But where does the money to “infuse” capital into these two corporations come from?  One of my favorite writers and economists, Dr. Walter Williams rightly says that you can’t create money out of nowhere, which means it’ll invariably come out of the taxpayers’ pockets, whether through taxes, borrowing or through the printing of more paper cash, inflating its value and reducing our purchasing power even further.  Considering that our purchasing power has already been weakened thanks to high fuel prices and higher global prices on food and other commodities, I’m not so keen on having to bail out two companies that were a) greedy (or overly exuberant) enough to hand out loans to high-risk borrowers and b) were largely forced to do so by asshat government regulations that prevented mortgage companies from being “discriminatory” in their lending practices.

I asked Dr. John Lott this morning what he thought about this latest bit of news.  His take is similar to mine.  As a matter of fact, he blogged about this very thing just a few months ago.

The
current mortgage crisis arose because loans were made with virtually
nonexistent underwriting standards. There was no verification of income
or assets, little assurance of the ability to pay the mortgage, and
little or no down payment. So, with rules like these, who wouldn’t have
expected defaults? In January, the Federal Reserve stepped in proposing
strict regulations on what conditions should be met before loans would
be allowed.

Democrats criticized the rules as not going far enough in determining when loans could be made.

But
if lending money to people with so little credit worthiness were so
obviously such a boneheaded mistake that even non-bankers see it, why
would people who had billions of dollars at stake and years of
experience lend out money this way?

To critics the answer seems simple: Greed.

Yet,
no matter how greedy you are, would you think that loaning money to
people who are likely to default with little collateral in their
property was the way to riches? Would you lend your money out that way?

Obviously, no.

So, why did they make the loans? Government regulation.

Some
of the very people who are now advocating new regulations were the same
ones that forced through the regulations over a decade ago that caused
the problems that we are facing today.

This all started back in 1992, when a Boston Federal Reserve study claimed to find evidence of racial discrimination. The Fed later used the study to produce a manual
for mortgage lenders that: “discrimination may be observed when a
lender’s underwriting policies contain arbitrary or outdated criteria
that effectively disqualify many urban or lowerincome minority
applicants.”

So
what is on the list of Fed’s “outdated criteria”? Such “discriminatory”
factors as the borrower’s credit history, income verification, and the
size of the mortgage payment relative to income.

Getting the picture yet, ladies and gentlemen?

Apparently, the very same government that made it difficult for mortgage companies to be more discriminatory in their lending practices (and you already know my views on so-called “discrimination“) and was, consequently, at least partially responsible for the credit fiasco in the first place, is now going to “save” them using money that belongs to the taxpayers.

And you wonder why I think this is a crappy idea!

UPDATE THE FIRST:  A commenter wrote recently that McCain doesn’t support government bailouts. 

Not really the case.

Campaign Senior Policy Adviser Doug Holtz-Eakin also issued a
written statement Saturday declaring that McCain-Palin support the
current steps being discussed in order to help voters affected by the
mortgage giants from facing further difficulties.

“John McCain supports the steps needed to keep the financial
troubles at Fannie Mae and Freddie Mac from further squeezing American
families and endorses the idea that management and shareholders should
not benefit from government backing. While details are not yet
available, the actions taken today are consistent with those
objectives. Fannie and Freddie have been the poster children for a lack
of transparency and accountability, and remind us of the needed reforms
to financial markets in general,” Holtz-Eakin said.