Phil Gramm, the senator-banker who until recently advised John McCain’s campaign, did get it right about a "nation of whiners," but he misidentified thefaint-hearted. It’s not the people or even the politicians. It is WallStreet–the financial titans and big-money bankers, the most importantinvestors and worldwide creditors who are scared witless by events.These folks are in full-flight panic and screaming for mercy fromWashington, Their cries were answered by the massive federal bailout ofFannie Mae and Freddy Mac, the endangered mortgage companies.

When the monied interests whined, they made themselves heard by dumping the stocksof these two quasi-public private corporations, threatening to collapsethe two financial firms like the investor "run" that wiped out BearStearns in March. The real distress of the banks and brokerages andmajor investors is that they cannot unload the rotten mortgagesecurities packaged by Fannie Mae and banks sold worldwide. Wall Street’s preferred solution: dump the bad paper on the rest of us, the unwitting American taxpayers.

The Bush crowd, always so reluctant to support federal aid for merepeople, stepped up to the challenge and did as it was told. TreasurySecretary Paulson (ex-Goldman Sachs) and his sidekick, Federal ReserveChairman Ben Bernanke, announced their bailout plan on Sunday to preventanother disastrous selloff on Monday when markets opened. Like thefirst-stage rescue of Wall Street’s largest investment firms in March,this bold stroke was said to benefit all of us. The whole kingdom ofAmerican high finance would tumble down if government failed to act ormade the financial guys pay for their own reckless delusions. Instead,dump the losses on the people.

Democrats who imagine they may find some partisan advantage in theseevents are deeply mistaken. The Democratic party was co-author of thedisaster we are experiencing and its leaders fell in line swiftly. Housebanking chair, Rep. Barney Frank, announced he could have the bailoutbill on President Bush’s desk next week. No need to confuse citizens bydwelling on the details. Save Wall Street first. Maybe lowbrow citizenswon’t notice it’s their money.

We are witnessing a momentous event–the great deflation of Wall Street–and it is far from over. The crash of IndyMac is just the beginning. More banks will fail, so will many moredebtors. The crisis has the potential to transform American politicsbecause, first it destroys a generation of ideological bromides aboutfree markets, and, second, because it makes visible the ugly powerrealities of our deformed democracy. Democrats and Republicans arebipartisan in this crisis because they have colluded all along over thirtyyears in creating the unregulated financial system and mammoth mega-banksthat produced the phony valuations and deceitful assurances. Thefederal government protects the most powerful interests from theconsequences of their plundering. It prescribes "market justice" foreveryone else.

Of course, the federal government has to step up to the crisis, but thecrucial question is how government can respond in the broad publicinterest. Bernanke knows the history of the last great deflation in the1930s–better known as the Great Depression–and so he is determinedto intervene swiftly, as the Federal Reserve failed to do in thatearlier crisis. By pumping generous loans and liquidity into the system,the Fed chairman hopes to calm the market fears and reverse the panic.So far, he has failed. I think he will continue to fail because he hasnot gone far enough.

If Washington wants real results, it has to abandon the wishful posturethat is simply helping the private firms get over their fright. Thegovernment must instead act decisively to take charge in more convincingways. That means acknowledging to the general public the depth of thenational crisis and the need for more dramatic interventions.

Instead of propping up Fannie Mae or others, the threatened firm shouldbe formally nationalized as a nonprofit federal agency performingvaluable services for the housing market. That is the real consequenceanyway if the taxpayers have to buy up $300 billion in stock.

The private shareholders "are walking dead men, muerto," InstitutionalRisk Analytics, a private banking monitor, observed. Make them eat theirlosses, the sooner the better. The real national concern should befocused on the major creditors who lend to Fannie Mae and other USagencies as well as private financial firms. They include China, Japanand other foreign central banks. Foreign investors hold about 21 percentof the long-term debt paper issued by US government agencies–$376 billion in China, $229billion in Japan.

It is not in our national interest to burn these nations with heavylosses. On the contrary, we need to sustain their good regard becausethey can help us recover by bailing out the US economy with more lending. Ifthese foreign creditors turn away and stop their lending now, the USeconomy is toast and won’t soon recover.

Americans should forget about whining; it’s too late for that. Peopleneed to get angry–really, really angry–and take it out on bothparties. What the country needs right now is a few more politicians inWashington with the guts to stand up and tell us the hard truth aboutout situation. It will be painful to hear. They will be denounced as"whiners." But truth might be our only way out.