Republicans admit the free market doesn't work.

For years, the Republican Party has preached the virtues of the "ownership society." Americans should own their own homes, goes the songbook; they should own stocks; they should take ownership of social benefits like heath care; they should approach their lives as if they are in charge rather than look for dependency-inducing welfare programs.

It's a compelling vision—and it has completely collapsed. The only important ownership that the Bush administration is peddling today is government ownership of the country's financial institutions. On Friday, Treasury Secretary Henry Paulson—the former CEO of Goldman Sachs—announced an unprecedented plan to salvage the largest banks in America. Just days after declaring that a bailout of Lehman Brothers would constitute an unacceptable moral hazard, a Republican administration has decided that the only way to keep the American economy alive is to have the federal government take the reins of some of the largest financial institutions in the world.

There is a term in political philosophy to describe a government takeover of a critical industry: That term is socialism. The government is telling us that capital and credit markets cannot, for several reasons, solve the current crisis on their own—only the federal government and its massive taxpayer base have the authority and the resources to solve it. That is state socialism: the philosophy preached by the founders of the Second International, by the radical wing of the American labor movement, through the formation of the Soviet Union and its satellites, and now by Henry Paulson.

Like the ownership society, socialism is also a compelling vision; just look at the logic of the Paulson-Bernanke plan. There are several financial institutions that have brought themselves nearly to extinction by acquiring a cornucopia of toxic assets, ultimately related to mortgages. Those assets might be worth what the banks thought they were worth, and they might be worth nothing; it's hard to know because the market for them in many instances has disappeared.

Because no one truly knows how to value these toxic assets, they have done a lot of damage. This year Bear Stearns and Lehman Brothers evaporated, and last week the stock prices of both Goldman Sachs and Morgan Stanley dropped dramatically despite ostensibly healthy earnings announcements. That is because investors feared that these opaque financial instruments might be costly enough to bring down the remaining two independent investment banks. That scenario could very well propel the American economy and much of the rest of the world into an economic down cycle with drastic consequences.

But when individuals or individual companies cannot save themselves, there is a collective alternative: We all take on the burden. The government picks up the check for the ailing parties and allocates over time the cost to the society as a whole, thereby preventing a meltdown. This is a common approach to economics across the globe, and even within the United States; when we collectively agree to provide income for retired and disabled people to keep them out of poverty, it's called Social Security. If we ever agree to provide health insurance for the tens of millions of Americans who don't have it, that will be called socialized medicine. What the Bush administration is proposing is, plain and simple, socialized banking.