We should understand a bit more about the source of the problem that emerged in the housing markets and the financial market generally before acting to remedy the current mess. The federal government's monetary system became rather promiscuous in the effort to promote homeownership, offering loose credit conditions through the two quasi-private mortgage holders Freddie Mac and Fannie Mae.  

It is essential that a free economy tolerate both the profit and the losses that come with this activity. But in the case of Fannie and Freddie, the profits were privatized while the losses were implicitly socialized, that is, born by taxpayers. This sets up a moral hazard. It means that people tolerate more risk than they should because the consequences will be shared. In other words, what we have here is not a free market at work but a subsidized and distorted market, one running on artificial credit and not subject to the same laws of accounting as every other institution in society.

The financial events of the last weeks, and really the last months and years, are really market-based responses to earlier interventions in the market process. One has to wonder, then, what the purpose of new regulations would be. After all, were it not for the past regulations, past interventions, we wouldn't be in the fix we are in today.  

No one is granted any real favor when there is intervention to stop the losses associated with investments gone array. When spokesmen for the Fed and the Treasury Department talk of tens of billions, and even hundreds of billions of dollars for bailouts, we should remember those resources come from the general population in the form of taxes, debt, and inflation.

It is impossible to speak of a market economy without remembering that it is also a responsibility economy. That means that people are free to profit, and there is nothing wrong with that. It is the reward for resources well invested and risk prudently taken. At the same time, losses must also be borne by those who take the risks.  

We need to tolerate both the rich and the situations when the rich are sent away by the winds of change. We also need clean lines of responsibility so that we know who is bearing liabilities for whom. This is the proper juridical framework for a market society.

As is often in the case in a crisis, the long-run problem is not the initial crisis but the mistaken response to it.  

Rev. Robert A. Sirico is president of the Acton Institute in Grand Rapids, Michigan.