Continued: How we got into this mess, and how not to get out of it

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Because many of these home loans were backed by mammoth, government-sponsored enterprises — Fannie Mae and Freddie Mac — Wall Street was more than happy to trade on these egregious loans. The assumption — which was proven right — was that Uncle Sam would guarantee them. Fannie and Freddie quickly grew too big, and all calls to regulate them more closely or reform their structures were ignored.

In fact, leaders in Congress, such as Rep. Barney Frank, D-Mass., chairman of the Financial Services committee, resisted reforming Fannie and Freddie at every turn. When former Treasury Secretary John Snow pleaded with Frank for Fannie and Freddie reform, Frank responded: "Fannie Mae and Freddie Mac are not in a crisis … I think we see entities that are fundamentally sound financially." But Snow was right.

Millions of homes and a mountain of wealth were built on a foundation of sand. When the housing bubble burst, it all began to collapse. Suddenly, the homeowners who took out loans they couldn’t afford had homes worth less than when they bought them. And stalwart financial giants were left holding onto billions in securities that they couldn’t cash — what are called "illiquid assets" in today’s headlines. Without liquidity, and the free flow of credit, the market grinds to a halt — and companies buckle.

Endless government bailouts will not prevent this crisis from repeating itself. It will further cement the precedent that got us here in the first place. There are other options for bringing much-needed liquidity to the market, including infusing the market with new capital by suspending the business tax and the capital gains tax.

Fannie Mae and Freddie Mac also need to be dismantled. Now that the implicit taxpayer guarantee they enjoyed for years has been made explicit, we have to make a clean break.

Accounting that artificially devalued securities and other assets should be temporarily suspended. Before Congress jumps to a full trillion-dollar-plus bailout, it should explore these and other market reforms. Congress should look for the best way to provide the greatest stabilization in the markets with the least taxpayer exposure.

This isn’t about Wall Street; this isn’t about Washington. It’s about the forgotten man — the responsible American taxpayer. Who will be left to bail him out?

Michele Bachmann, R-Minn., serves on the Financial Services Committee in the U.S. House of Representatives.

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