The AP headline actually read: Regulators pledge to shore up financial system. However, the brilliant plan that these “regulators” have in mind “includes the option of increasing government ownership in financial institutions.” That is not just making the problem worse–not fixing it.

Apparently, this new scheme to increase government ownership won’t cost more taxpayer dollars.

“In a new twist, regulators have the option of allowing the government to boost its ownership in banks without having to pour more taxpayer money into them. That would be done through a technical change converting the status of the government’s shares in a financial institution.”

What? So we are going to fiddle with the numbers? I am no financial wizard but, unless you are buying more shares of a company, how else would you own more of it? Changing types of shares does not magically increase the value you had in the company.

I’m going to say that this will cost more taxpayer dollars and be a waste. We already own 80% of AIG and apparently they need even more money now. AIG is currently a penny stock–what a sight to see. This is a zombie company that needs to go out of business.

These regulators are some of the biggest users of Doublespeak alive.

“Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption (of the program) is that banks should remain in private hands,” the regulators said.

It is true that the economy functions better when managed in the private sector. What isn’t true is that these regulators want to keep it that way. They talk the talk but, fail to walk the walk. The government owns more percentages of banks with each passing week. Nationalization is said to be “off the table” but, it is going to happen at the rate we are going.

The markets are continuing its downward spiral as the government refuses to let bad debt be liquidated so that smarter people can manage the resources left over. As the Austrian School has been preaching: you cannot solve the problem of too much credit with more credit!

It was just a matter of time before Fannie Mae and Freddie Mac became nationalized. Secretary Henry Paulson had pledged the full faith of the United States government behind these two bankrupt institutions to try and calm investor’s fears. Fannie and Freddie lost over 90% of its stock value since the beginning of the year and is holding onto at least a trillion dollars in bad mortgages–$5 trillion in total mortgages.

Paulson is expected to make an announcement this Sunday to take over the two troubled institutions. This is a bailout of epic proportions. The biggest losers in this deal are the taxpayers. These two semi-private institutions decided it was a good idea to buy all these mortgages. They took the risk and now they should bear the responsibility–not us.

It is expected that the vast majority of the loans on Fannie and Freddie’s books will be default and this will only end up costing taxpayers tens of billions of dollars. The accuracy of this estimation is probably low considering the government estimates of the sub-prime mess. The worst outcome of this bailout is the future bad loans that will be created because the government is backing all the loans.

If this housing crisis has been bad, it is only going to get a lot worse if banks can continue to make bad loans knowing that Fannie and Freddie will have the money to buy them. There are many who argue that allowing Fannie and Freddie to fail is worse than bailing them out. That is simply not the case.

It will be bad for a short while if we let them fail and credit becomes tighter–a lot tighter. The long term result is that the economy gets back on its feet faster and we can start seeing some real economic growth. Politicians don’t look into the future. They only look as far as the next election cycle and by no means do they want to be the ones in charge when all hell breaks loose so they will prolong it as long as possible.

So while we the government continues to provide socialism for the rich. The rest of us will suffer with a lowered standard of living.