Remember that old joke that a conservative is a liberal who got mugged? Well, maybe we can now say that a socialist is a free marketer who just got a $700 billion government bailout.

Lost among all of the talk about whether Hank Paulson and Ben Bernanke have become the new overlords of the American economy, is discussion about helping save homeowners from the Bush administration. All that was said is that homeowners want the U.S. Congress to pass the rescue bill quickly.

Democrats in Congress have other ideas. Sen. Chuck Schumer (D-NY) told Fox News Sunday that " we have to do something about the mortgage crisis, not just foreclosures but the price of housing."

Schumer makes a good point, but figuring out what to do is tricky. More must be done. The consequences of massive foreclosures are too big to ignore.

I have heard the arguments before that we should not reward speculators and people who bought homes that they could not afford. That sounds great if we lived in a free market utopia. But as the last few days have illustrated, the free market ain't what it used to be.

Foreclosure rates, which jumped an astounding 90% in May, are showing no signs of slowing as something like $2 trillion worth of adjustable rate mortgages are due to reset at higher interest rates.

Once red-hot real estate markets, including Las Vegas, are now ice cold and speculators are being forced to dump properties that they bought at the height of the real estate bubble. The market doesn't look like it will rebound until late in the year at the earliest.

What makes these statistics particularly surprising is that mortgage companies typically want to avoid foreclosures. It's a costly, time-consuming process that can drag on for months. Once a bank gains possession of the home, it has to go through the hassle of finding a new buyer. I don't know whether this data indicates that lenders don't think it's worth the effort to help out home owners or that they've already exhausted every means at their disposal to help them.

The hurt goes beyond subprime mortgages.

If people don't get good prices for their homes, they won't be able to upgrade into more expensive ones, which is why home builders including Toll Brothers Inc. (NYSE: TOL) continue to suffer. Bloomberg News notes that the Mortgage Bankers Association estimates that investment in the residential housing industry, which includes purchases and expenditures for equipment such as heating and air-conditioning, fell 17.2% in the first quarter.

All of this is especially bad news for first-time home buyers. Credit standards are being ratcheted up so high that many people who would have qualified for loans six months ago can't get a mortgage today, according to Bloomberg News.