Phil Gramm, the senator-banker who until recently advised John McCain’s campaign, got it right about a “nation of whiners,” but he misidentified the faint-hearted. It’s not the people or even the politicians. It is Wall Street– the financial titans and big-money bankers, the most important investors and worldwide creditors– who are in full-flight panic and screaming for mercy from Washington. Their cries were answered by the massive federal bailout of Fannie Mae and Freddy Mac, the endangered mortgage companies.

When the monied interests whined, they were heard by dumping the stocks of these two quasi-public private corporations, threatening to collapse the two financial firms like the investor “run” that wiped out Bear Stearns in March. The real distress of the banks, brokerages and major investors is that they cannot unload the rotten mortgage securities packaged by Fannie Mae and sold worldwide. Wall Street’s preferred solution: dump the bad paper on the unwitting American taxpayers.

THE CRASH OF INDYMAC IS JUST THE BEGINNING.

The Bush crowd, always reluctant to support federal aid for mere people, did as it was told. Treasury Secretary Henry Paulson (ex-Goldman Sachs) and Federal Reserve Chairman Ben Bernanke announced their bailout plan Sunday to prevent another disastrous sell-off on Monday when markets opened. Like the first-stage rescue of Wall Street’s largest investment firms in March, this bold stroke was said to benefit us all. The whole kingdom of American high finance would tumble if government failed to act or made the financial guys pay for their own reckless delusions. Instead, dump the losses on the people.

The Democratic Party was co-author of the disaster we are experiencing and its leaders fell in line swiftly. House banking chairman, Rep. Barney Frank, announced he could have the bailout bill on President Bush’s desk next week. No need to confuse citizens by dwelling on the details. Save Wall Street first. Maybe lowbrow citizens won’t notice it’s their money.

We are witnessing a momentous event– the great deflation of Wall Street. The crash of IndyMac is just the beginning. More banks will fail, so will many more debtors. The crisis has the potential to transform American politics because, first, it destroys a generation of ideological bromides about free market. Second, because it makes visible the ugly power realities of our deformed democracy. Democrats and Republicans have colluded over 30 years in creating the unregulated financial system and mega-banks that produced the phony valuations and deceitful assurances. The federal government protects the most powerful interests from the consequences of their plundering. It prescribes “market justice” for everyone else.

Of course, the federal government must step up to the crisis, but the question is how government can respond in the broad public interest. Bernanke knows the history of the last great deflation in the 1930s– the Great Depression– and he is determined to intervene swiftly, as the Federal Reserve failed to do in that earlier crisis. By pumping generous loans and liquidity into the system, the Fed chairman hopes to calm market fears and reverse the panic. He has failed. I think he will continue to fail because he has not gone far enough.

If Washington wants real results, it must abandon the wishful posture that is simply helping the private firms get over their fright. The government must instead acknowledge to the public the depth of the national crisis and the need for more dramatic interventions.

Instead of propping up Fannie Mae or others, the threatened firm should be nationalized as a non-profit federal agency performing valuable services for the housing market. That is the real consequence, anyway, if the taxpayers have to buy up $300 billion in stock.

The real national concern should be focused on the major creditors who lend to Fannie Mae and other U.S. agencies, as well as private financial firms. They include China, Japan and other foreign central banks. Foreign investors hold about 21 percent of the U.S. government long-term debt– $376 billion in China, $229 billion in Japan.

It is not in our national interest to burn these nations with heavy losses. On the contrary, we need to sustain their good regard because they can help us recover by bailing out the U.S. economy with more lending. If these foreign creditors turn away and stop their lending now, the U.S. economy won’t soon recover.

Americans should forget about whining; it’s too late for that. What the country needs right now is a few more politicians in Washington with the guts to stand up and tell us the hard truth about our situation. They will be denounced as “whiners.” But truth might be our only way out.

WILLIAM GREIDER is The Nation magazine’s National affairs correspondent.