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What is one of the most important things a private business can do? It can fail.

It's certainly a sad moment when a shopkeeper has to turn out the lights and hang up the "out of business" sign.

But the possibility of failure is the necessary companion to a business culture of risk-taking and innovation. Some entrepreneurs make bad guesses about future market conditions. An orderly system is then required to auction off their furnishings and rent out the premises to the next person with a bright idea and a colorful sign. The market thus frees up resources for use by someone else.

The opposite is also true. When money-losing ventures are not allowed to fail, and that "correction" doesn't happen or is long delayed, the result can be a cataclysm, like a dam bursting because those in charge refused to divert the water in a controlled manner.

The Treasury and the Federal Reserve have been struggling all year to prevent a correction which might involve the failure of major investment banks that find their mortgage- and real-estate-backed assets dwindling in nominal value. Assuming that would be too traumatic, the money managers have been generating billions of new greenbacks and "loaning" them -- along with government securities -- to banks judged too big to fail.

Then, in a bailout which The Wall Street Journal on Monday called "one of the great political scandals of our age," Treasury Secretary Henry Paulson announced plans Sunday for a federal takeover of troubled mortgage giants Fannie Mae and Freddie Mac. In essence, taxpayers will now be saddled with covering as much as $200 billion in bad mortgages.

But the Treasury Department has not placed Fannie Mae and Freddie Mac into receivership. It has not liquidated the value of the stock held by private investors.

To allow private managers and investors to reap private profits, knowing that their risk-taking is covered by a de facto taxpayer guarantee, is described by the Journal as a "perverse mix of private profit and public risk, which gave them an incentive to make irresponsible mortgage bets."

Thus does "mixed public and private" enterprise devolve almost inevitably into control by the dead hand of the regulator.

When government no longer allows enterprises to fail, they are no longer truly private, and we are far closer to an economy run by government overseers (despite the technicality of "private title") -- a system developed in Italy in the 1920s, in acknowledgement of which we still refer to that economic system as "fascism."