Bears Stearns, the Wall Street investment banking giant, is now on life support, being kept alive only by infusions of tens of billions of taxpayer dollars courtesy of the Federal Reserve Board. In the months ahead, it is virtually certain that more of the Wall Street big boys will be pushed to the edge, victims of excessive greed and really bad judgment.

Until about six months ago, Wall Street was at the center of the world-wide neo-liberal push to eliminate government regulation and allow the market to operate unfettered. (This was always more hype than reality as I show in The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer [free download available].)

Things are different today. With the banks on the edge of collapse, the bankers are demanding the sort of government help they would deny to working mothers trying to provide their kids with health care, child care, and decent housing and education. Of course the situation is very different. The working mothers are looking for chump change, the Wall Street boys want real money.

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People across the political spectrum are now running to the government demanding that it rescue the banks and financial industry from the fallout from the collapse of the housing bubble. Some are running to the front door, demanding that the government buy up or guarantee tens or hundreds of billions of dollars of bad mortgage debt. Others, specifically the big New York banks, have gone to the backdoor and are getting hundreds of billions of dollars in cut rate loans from the Fed in secrecy through the Fed’s new “Term Auction Facility (TAF).”

With so many people on all sides of the political spectrum desperately seeking the government’s help, those of us in the sidelines have to ask: “whatever happened to the free market?”

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The latest jobs data leaves little doubt that the economy is headed into recession. Excluding the health care and restaurant sector, the private sector has been shedding jobs at the rate of more than 90,000 a month since November. Even a mainstream economist can recognize this as bad news.

With the economy headed down, many people are looking for someone to blame. Some have turned to the Iraq War, which is now costing in the neighborhood of $180 billion a year (@1.2 percent of GDP). While spending on the war has been harmful to the economy, it is not the cause of the recession.

The cause of the recession is crystal clear -- it is the collapse of the $8 trillion housing bubble.

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