The Bush administration’s proposed $700-billion bailout of the financial-services industry flies in the face of logic, fairness and the underlying principles of the U.S. Constitution. It would reward private-sector firms that made bad bets in the housing-market bubble and leave unprotected many families that lenders should have said “no“ to. The bottom line is that some companies deserve to go out of business or be forced to sell assets to raise cash to cover their bets. If they fail, so what? Others will step up to take their place, hopefully with more wisdom than the departed.

The most offensive part of the proposed plan is to give Treasury Secretary Henry M. Paulson Jr. and his successor broad authority, with a shield from judicial review, to buy up to $700 billion of compromised assets from any financial institution he decides, in consultation with Federal Reserve Chairman Ben S. Bernanke. Both men and the administration say this is necessary for market stability. Paulson may be well-intentioned, but as former CEO of Goldman Sachs he is the product of the industry he is seeking to protect. That is a clear conflict of interest since his old firm may become a beneficiary.

The checks and balances the framers of the Constitution embedded in the document are there for a reason: no particular branch of government should be in a position to hijack the nation in a time of crisis. That is exactly what is being proposed.

Other parts of the plan also are flawed. Oddly, the bailout would protect the golden parachutes of executives who led their financial institutions to ruin. Why shouldn’t those golden bulls be stripped to their shorts and share in the pain? What about criminal prosecutions for fraud like in the Enron case? And if there ultimately must be some kind of federalization of bad debt, it should not be “cash for trash“ at inflated rates. There must be U.S. equity in the firms in return for assistance so taxpayers can recoup some of their investment when markets stabilize.

Changes proposed by House Democrats would do some of that and more. Their recommendations include a congressional oversight panel for the rescue and allowing judges to recast mortgages of bankrupt homeowners.

There should be some federal action to stabilize financial markets with more capital. There already has been sizable action—some good, some bad. There must be regulation of collateralized debt obligations and how they are rated—big factors in the credit crisis. Sorting this out will take time, but the nation and Congress should not be duped into quick, stupid actions.