The debate about government’s role in the economy just got stoked big time, what with the recent news that Treasury Secretary Henry Paulson wants to shore up Fannie Mae and Freddie Mac with taxpayer dollars.

Conservatives and Libertarians are in full rant today as Congress begins to debate Paulson’s bailout plan. A “tax-payer backed blank check,” lamented a conservative friend of mine. “Crony capitalism,” says the Wall Street Journal’s Paul Gigot. “Casino capitalism—taxpayers bankrolling management high rollers,” says Gerald O’Driscoll Jr., a former economic advisor at the Federal Reserve Bank of Dallas and now a senior fellow of The Cato Institute.

After hearing that Paulson wanted the Treasury to be able to buy senior preferred shares in Fannie and Freddie if necessary, Sen. Jim Bunning (R-Ky.) quipped that he thought he woke up in France.

In short, critics say the two companies should—and can—raise capital on their own in the open market. And they are amazed that a Republican-appointed Treasury secretary would break Elementary Economic Truths: Bad firms must be allowed to fail the market will sort it out. The arguments for government intervention basically say that if we don’t bailout Fannie and Freddie, the two biggest buyers of home mortgages in the country, the integrity of the entire financial system is at risk and that their failure would wreak havoc on housing prices.)

I say let Fannie and Freddie hit The Street like every other capital-starved company. But, no doubt, Paulson’s bailout plan has to be seriously considered and debated, considering the man knows what he’s talking about. That said, The Onion, the weekly satirical newspaper, lampoons the whole government-intervention theory best with its “article,” published last week, “Recession-Plagued Nation Demands New Bubble.”

Here is The Onion story’s hilarious lede:

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.