The U. S. Treasury and the Federal Reserve have launched unprecedented interventions in the financial markets this year in a series of misguided attempts to stabilize the financial sector.

With the rescue and forced merger of Bear Stearns in March and the bailout of Fannie Mae and Freddie Mac in September, government officials have transferred wealth and purchasing power from taxpayers and consumers to wealthy investors. These actions do not address the source of the problem in the financial services industry and simply sow the seeds of future crises.

Why should taxpayers be forced to assume billions of dollars of debt created by poorly-run shareholder-owned corporations when they received no gain from the profits of these corporations in the years prior to the credit crunch?

Why should consumers and savers face a higher rate of inflation due to the Federal Reserve's tremendous increase in the money supply to bail out poorly-run financial institutions?

Why should the debt holders of Bear Stearns, Fannie Mae, and Freddie Mac, who did not practice due diligence before making their investments, receive the hard-earned dollars of millions of Americans who did not create or participate in the activities of these institutions?

During the go-go years of the housing boom, real estate developers, construction companies, mortgage loan originators, investment banks, and other financial institutions made millions of dollars in profits from a frenzy fueled by low real interest rates and lax lending standards.

Managers and employees of financial institutions, including Bear Stearns, Fannie Mae and Freddie Mac, received handsome compensation, while their shareholders and debt holders, many of whom were wealthy investors, hedge funds and sovereign wealth funds, received high rates of return on their investments.

Now that the losses arising from poor management and excessive risk have come home to roost, why is the government bailing out these same investors?

The usual argument is that the housing sector is too important to allow it to suffer, and some institutions are too large to fail. I disagree.

Yes, a slump in the housing sector will cause economic growth to slow for a few quarters and some financial institutions may fail. However, this correction is necessary to wring out bad business practices from the financial system, to reduce the overinvestment in residential housing, and to create an incentive for shareholders and debt holders to monitor their investments and provide managers and employees with proper incentives.

The solution is not to bail out the institutions and investors that created the problem, but to correct misaligned incentives within financial institutions and to reduce the incentive of the financial sector to take excessive risk.

With these bailouts the gains from the housing boom go to the privileged few, but the losses are shared by the disenfranchised many.

This transfer of wealth will only get worse as investment banks and other financial institutions handle the repackaging and disposal of Fannie Mae's and Freddie Mac's assets. Whose interests are our government officials protecting?

Schranz is an instructor in economics at Madison Area Technical College.