I wrote a column for the Dallas Morning News last week warning about politicians trying to sell us on big decisions based on appeals to fear.

And here comes Bush, warning that if we don’t pass Paulson’s version of a bailout, there will be “painful and lasting” economic damage and, “The consequences will grow worse each day if we do not act.”

His talking points hate my freedom. (*sniffle*)

I’ve spent some hours sitting down with Jeb Hensarling at his Dallas home, and he’s one of the good ones on economics. The $700 billion bailout has had its EPIC FAIL (woo hoo!) moment, but before it went to vote, he put it perfectly.

Republican Jeb Hensarling of Texas, a leading conservative, said the bill puts the country “on the slippery slope to socialism. If you lose your ability to fail, soon you will lose your ability to succeed.”

I brought you part one on Friday. Here’s the sequel. (Bonus Bill Clinton moment at the end, where he has a little honest mea culpa moment.)

(And just to be clear, the problem that kicked this off was regulations demanding more home loans for unqualified borrowers. Poor judgment on the part of people who bought and sold mortgage backed securities expanded the problem, and they’re the ones who are being bailed out — and who shouldn’t be. And since Fannie Mae and Freddie Mac are not, in fact private companies but government-chartered institutions, the call for more regulations on those two is not an endorsement of more regulation of the free market itself.)

It’s not the “Wall Street fat cats,” unless you mean by that the head of the the government sponsored corporation known as Fannie Mae.

Buried in the NY Times archives is this little gem of a story from Sept. 10, 1999:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

”Fannie Mae has expanded home ownership for millions of families in the 1990′s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

(Raines, incidentally, is an adviser to Barack Obama.)

Now here comes the best part.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

Glorious.

So you see, the problem isn’t greed (which exists in every market, because it’s part of human nature) and it’s not a Lack of Regulation(TM).

No, it’s government pressuring the market to make irrational moves like loaning money to people with bad credit in the name of “fairness.” The problem is not too little, but too much, government regulation. As usual.