Editor’s Note: The non-partisan Web site “Opposing Views” offers readers a look at all sides of the debate on a variety of issues.  This is the second of a series of posts from the Web site that will appear in the FOX Forum.

Hank Paulson’s $700 Billion Hedge Fund: The Market Nationalization Continues

By Alex Epstein
Business Analyst, The Ayn Rand Center for Individual Rights, a division of the Ayn Rand Institute

Over the last year, the central planners at the Fed and the Treasury have claimed that they will stop the credit crisis with some new dictatorial intervention–first with Bear Stearns, then with Fannie and Freddie, then with AIG. Now they offer us yet another magic bullet: a $700 billion check from taxpayers to Hank Paulson–who will bail out as many financial institutions as he sees fit.

This socialistic power grab, just like the last half dozen, is being sold as a necessary, one-time “emergency” measure.  But these measures are simply greater and greater doses of the poison that got us where we are in the first place: government manipulation of the housing and financial markets.

Government manipulator number one was the Federal Reserve, which dictated artificially low interest rates, inflating the currency to create the illusion of economic growth. The result was a borrowing spree by banks, which proceeded to lend nonexistent capital to homebuyers, who proceeded to collectively fuel a housing boom–which fueled a boom in mortgage-backed securities. Fannie and Freddie added dramatically to the number of bad loans and bad securities on the market under the banner of “affordable housing,” using their implicit government backing to make trillions in loans that wouldn’t have otherwise been made. And there were dozens of other government-created distortions, from rating agencies to the “too big to fail” policy.

Many private bankers and borrowers made foolish decisions: they should have known housing prices cannot go up forever. But today’s crisis could not have reached a fraction of its current proportions were it not for the government’s power to create bubbles and pervert lending practices in the name of some indefinable “public interest.” The basic solution, therefore, is to disentangle and remove the government from the financial and housing markets. This means, for starters, getting rid of the Fed’s power to manipulate interest rates, letting housing prices fall to market levels, dismantling Fannie and Freddie, and ending bailout promises.

Untangling this government mess is not an overnight job, and it is not obvious how best to proceed. It is conceivable that on the way to removing its toxic presence, a repentant government might need to take stopgap financial assistance measures to prevent market-wide catastrophe. The current plans, however, do not seek to dismantle the government’s command-and-control financial apparatus, but to expand it. Observe that Bush’s recent explanation of the causes of the crisis didn’t even mention the Federal Reserve, the Treasury, Fannie Mae or Freddie Mac, let alone give them proper blame. But he did mention them in all his solutions, which give these entities near-dictatorial control over financial markets.

To ask Americans for an “emergency’ $700 billion to further nationalize the financial markets is a travesty. Congress should not give the Administration a nickel. And we should all demand that our government stop manipulating the market.

To read more expert analysis on Opposing Views, click here.