The unprecedented intervention came only two days after Black Sunday, when the 158-year-old Lehman Brothers and Merrill Lynch (NYSE:MER), two of the most venerated names in Wall Street finance, both disappeared from the global scene. Lehman went belly up and Merrill Lynch had to be swallowed by the Bank of America. And as we predicted in these columns Monday, more giants are falling fast.

The AIG deal leaves the U.S. government owning 79.9 percent of the company's equity -- and it is not even a government-sponsored enterprise like Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), the two mortgage giants that financed 70 percent of the U.S. housing market. In this Black September, the conservative, supposedly free-market Bush administration already has bailed them out, too.

The inevitable argument was made that AIG, like Fannie and Freddie before it, was just too big to be allowed to fail: Had any, let alone all, of these giant firms gone belly up, the argument went, it could very well have set off a chain-reaction collapse of major banks and financial institutions worldwide. The last time anything comparable happened was when the ripples of the 1929 Wall Street Crash and ensuing Great Depression set off a wave of financial collapse triggered by the fall of the Creditanstalt bank in Vienna in 1931. That led to mass unemployment and misery throughout Europe, which in turn gave Adolf Hitler his chance to seize power in Germany. World War II and the deaths of 80 million people rapidly followed.

U.S. and world financial leaders don't want anything remotely like that to happen. But the latest bailouts are just a holding action and do nothing to solve the underlying problems caused by a tidal wave of ridiculously cheap credit over the past decade that started under U.S. President Bill Clinton but got vastly worse under current President George W. Bush. Yet one of the justifications already being offered for the AIG bailout is that without it, interest rates within the United States might actually be allowed to rise.

Bush, for all his professed admiration of President Ronald Reagan, has never shown the slightest awareness that Reagan and his legendary Federal Reserve Chairman Paul Volcker broke the back of the great inflation of the 1970s by allowing interest rates to soar sky high, restoring international investor confidence in the U.S. economy and government.

By contrast, the succession of panic-driven gigantic bailouts that Bush and his Treasury Secretary Henry Paulson have pushed through are bound to have the opposite effect: They raise the infinitely worse specter of a collapse of investor confidence in the U.S. government itself.

The AIG bailout also begs the question of who is going to get more bailouts and who won't. Effectively, Bush has put the U.S. government in the position where it now decides which companies are essential and which are not. De facto socialism on the British and Swedish model has now taken control of what economic analyst and historian Daniel Yergin called "the commanding heights" of the U.S. economy.

In dollar terms alone, the U.S. government has already committed more money to this financial crisis to date than the $124 billion it invested in the savings and loan crisis of the 1980s and '90s. Even House Speaker Nancy Pelosi, D-Calif., at least sounds more conservative on this one than Bush: She has warned that far too much taxpayer money already has been put at risk in authorizing this latest AIG bailout.

On the positive side, Americans at least can hope against hope that, like the Chrysler bailout in the late-1970s, AIG might stagger through to some kind of recovery that eventually might allow the U.S. Treasury to profit on the deal.

However, it seems unavoidable that bad precedents are going to be created by the ad hoc, stanch-the-bleeding approach that Paulson and Federal Reserve Chairman Ben Bernanke have taken in the crisis so far. Beyond Wall Street, U.S. automakers are already angling for a $50 billion loan. And if they get it, why shouldn't the airlines?

Nor are these bailouts any kind of magic wand. Despite all of them, banks are spooked and either lending at high rates to other banks or not lending at all because nobody really knows what institutions are stable and which are next for the bailout window.

Where is this going to end? This year the U.S. government already has approved takeovers, loans and guarantees totaling almost $1 trillion. How many more such bailouts will be required?

So far, neither Republicans nor Democrats have offered any plausible alternative to Bush's panic-driven policies. Neither of the main presidential candidates, Sen. John McCain, R-Ariz., and Sen. Barack Obama, D-Ill., has yet focused on the tough and unpopular measures that will be necessary to rescue the U.S. government and the national economy from the specters of collapse of confidence and hyperinflation. No one on either side of the aisle in Congress so far appears to even grasp what the fundamental economic issues and dangers are.

Pelosi is correct to say that this catastrophe has to be laid at Bush's feet. But during the nearly two years she and her fellow Democrats have run both houses of Congress, they have not proposed or pushed any realistic alternative.

For this generation of Republicans and Democrats alike, economic policy has devolved into the childish fantasy that the U.S. government is a magic ATM machine that will always automatically churn out trillions of dollars on demand to fund anything.

Now it is finally time for the little Republican and Democratic children alike to wake up and face their adult responsibilities in this frightening new world.