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LOWER THE FLAGS ALONG WALL STREET TO HALF-STAFF. Play a dirge and hang out the crepe. Market capitalism is dead. Our financial system, for all intents and purposes, has been federalized, with taxpayer-financed "backstops" stretching as far the eye can see. Bear Stearns, Freddie Mac (ticker: FRE), Fannie Mae (FNM) and their mortgage-industry brothers-in-ARMs all are beneficiaries of this corporate-welfare scheme. Other reckless lenders with sob stories almost certainly will be added to the list.

What is hard to digest is that the government's "bailout" of Fannie, Freddie and the rest of the housing market has elicited barely a whimper of protest from the famed financial district, a place that once proudly billed itself as the free-market capital of the world. Nor has there been a plausible peep from our two presidential candidates about this blow to the American way.

Wall Street -- the proud, powerful and symbolic American landmark that Osama bin Laden repeatedly has vowed to destroy -- used to be about the invisible hand, risks and rewards, and the late economist Joseph Schumpeter's "creative destruction."

It was creative, alright. Now the incubator of financial innovation turns out to be part wax works, a place where dead companies are made to look life-like by the very visible hand of the government. Move over, Madame Tussaud. Make room for Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke.

Their intention is to protect the financial system from a far larger catastrophe. But Paulson and Bernanke inadvertently are leading us to a place from which countries like Sweden are desperate to escape: a land called Socialism. History has demonstrated here and abroad that once you start down this slippery slope, it is extremely hard to reverse direction. Welfare dependence among the poor was a pathology that endured for 30 years until President Bill Clinton ended open-ended handouts. Expect our bankers to be just as reluctant to get off the dole as were the beneficiaries of those handouts.

Among the many ironies here, Paulson and Bernanke were appointed by George Bush, our very first MBA president, who seems uninterested in the credit-market catastrophe and its ramifications, and only too happy to delegate the stressful job of shoring up a collapsing economy to his more experienced minions. As far as we can tell, he took no 3 a.m. phone calls from Paulson when the Fannie and Freddie started to topple a few weekends ago.

The poor man! With just a few months left in office, Bush sees leg after leg falling from under his legacy. He was a uniter, not a divider. He was going to fix Social Security. He was going to cut spending and shrink government, not run up the deficit. And he was going to liberate Iraq, not occupy it. His lofty goals have morphed into bitter disappointments. He's become a real-life Charlie Brown, all tangled up in his kite string.

Until recently, the economy was the president's most enduring achievement. It miraculously survived and prospered through the Sept. 11 attacks, monster hurricanes, a major war -- a resiliency Bush attributes, correctly in my opinion, to his tax cuts. The economy is still managing to grow despite oil-price and commodity shocks and the bursting of a spectacular investment bubble. But the economic growth is subpar and has been sustained by a debased currency and extraordinary efforts such as stimulus checks and the recent corporate "backstops," administration- speak for bailouts. A "Mission Accomplished" banner just won't serve as a credible backdrop here.

Even more ironic, Paulson and Bernanke are being egged on by Wall Street brokers and bankers who may well be the children and grandchildren of the same Elephant plutocrats who denounced Franklin Delano Roosevelt's New Deal 70 years ago as a pinko plot. They've encouraged big government to solve our most pressing problems.

The backstops now are a political problem for the GOP, which no longer can castigate Democrats for pitching big-government solutions to most of our problems. If the Democrats win in November, as pollsters are predicting, there will be no credible opposition to: government-run health care; a tax system that redistributes wealth rather than raising essential revenue; and a command-and-control "green-power" industry, or the born-again prohibitionists who this time will take their axes to the oil barrel, sparing the contents of the whiskey barrel as a fuel resource for your car.

If you expect a spirited defense of free-market capitalism from Republican hopeful John McCain, look elsewhere. McCain recently said he doesn't believe General Motors (GM) needs a government bailout, but if conditions worsen enough for the auto maker, all options need to be considered.

R.I.P. free market, at least on this side of the Pacific.