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Wallison says the government should just take control of Fannie and Freddie, making them tightly controlled government agencies with the aim of reducing taxpayer risk, not expanding it. Maybe down the road the two housing banks could be completely privatized, but that no longer looks to be part of the conversation.

There's another key point to this bailout. The proposal to open the Federal Reserve discount window to Fannie and Freddie may essentially put the Fed in charge of yet another part of our financial system. The central bank is already becoming the lender of last resort and regulator of Wall Street investment banks. The New York Sun's Seth Lipsky calls this a power-grab. But Fannie and Freddie jurisdiction would have the Fed grabbing even more power.

Here's the key question: If the Fed is supervising and lending to Wall Street and the two housing-finance behemoths, when will it have the time or inclination to defend the value of the U.S. dollar and stop the incipient inflation that has been taxing consumers and dragging down the economy? Remember, low unemployment is also a Fed mission. So what are the central bank's priorities? If it is the ultimate "financial stabilizer," what should we expect about the future value of our money?

The saga of Fannie and Freddie already shows the moral hazard created when Uncle Sam rewards institutional miscues. But if the Fed is bailing out all these financial areas, the ultimate moral hazard could be a U.S. dollar that nobody wants to own.

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COPYRIGHT 2008 CREATORS SYNDICATE INC.

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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.

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