It's beginning to look as if Fortis was right. In June the Belgium-Dutch financial giant, itself beset by financial woes, warned, according to a Dutch paper, that the "complete collapse of the U.S. financial markets" was in the offing, just days or weeks away.

Maybe it won't be a "complete" collapse, but the dire warning is beginning to appear more credible daily. Just days after the Fortis warning, letters from Senator Charles Schumer speculating about the "possible collapse of big mortgage lender IndyMac Bancorp Inc." set off a run on that ailing mortgage lender with depositors withdrawing more than $1.3 billion in just 11 days.

In the weeks since there has been increasing speculation about the stability of both the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These holdovers from the Roosevelt Administration's ill-conceived New Deal presently own or guarantee half of the $12 trillion U.S. mortgage market, yet they were characterized recently as "insolvent" by former Federal Reserve President William Poole.

In a free market, when you perform poorly your business might fail. But Poole, a consummate government regulator, thinks Fannie Mae and Freddy Mac are too big to fail. "Clearly they must be supported," he said according to a July 11 Reuters report. "They (the U.S. government) cannot allow that amount of assets ... to go into limbo." In other words, according to Poole, the federal government must take money (a lot of money!) from some and give it to others. As economist Frederic Bastiat eloquently pointed out, that is socialism, the law run amok and turned on its head.

On top of IndyMac and Fannie and Freddie, the bad news from the financial sector keeps coming. On Tuesday, Wachovia Corp. reported striking losses totaling nearly $9 billion for the quarter. "Our reported results today are clearly a disappointing performance for which we take responsibility," Wachovia CEO Bob Steel told analysts on a conference call. The nation's fourth largest  bank also noted that it would eliminate as many as 10,750 positions.

There's not much question as to where to assign blame for this mess. Inflationary monetary policy creates bubbles that eventually burst. The question is, what is the solution? Two possibilities present themselves. The first is that championed by William Poole: let the government bail out the failing banks. The second solution is to let banks reap the consequences of their poor business practices and fail.

Proponents of big government want the American people to believe that government can solve the problem through bailouts and other remedies without consequence, while also arguing that doing nothing and letting the market work is too dangerous. But the fact is that government bailouts and regulations actually introduce further distortions in the market. Fannie and Freddie are prime examples of this themselves. By looking to further government expansion to save the tottering banking institutions, we are likely only prolonging our collective financial misery, or postponing it a short while.

By contrast, the best solution would be to get government out of the market. Sure Fannie and Freddy would probably fail. So might others. That's the market for you. The weak and the foolish fail and the quick, the smart, and the strong survive and prosper. This is what made America the world's greatest economic powerhouse and it is the only solution for our current economic woes.

The alternative is statism and stagnation.