I studied economics in San Francisco, which is hardly the headquarters of capitalism. But I've recently discovered that the free market also may no longer be the preferred economic system for the rest of our country.

It all began very quickly, even for those of us who watch the market and the economy on pretty much a daily basis. We knew all too well that rotting subprime mortgages had led a couple of years ago to a housing crisis, which in turn had suddenly morphed into a global credit crunch that eventually required about $700 billion of taxpayer money to fix -- immediately.

We were tricked
We were led to believe that the funds would be applied to buying failed loans from the banking system. Only recently have we discovered that the line of companies seeking a piece of the bailout action includes insurance companies, securities dealers, hedge funds, Detroit's Big Three automakers, and a host of American subsidiaries of foreign banks.

The U.S.-based banks I can understand, since they underpin virtually all of the business and consumer activity in our country. That's the group I thought we were targeting when Treasury Secretary Paulson and Federal Reserve Chairman Bernanke spent several days convincing Congress of the urgency of shifting taxpayer money to the commercial sector to prevent an economic catastrophe. But now it appears that the likes of overseas banks UBS (NYSE:UBS) and Royal Bank of Scotland may be able to dip their hands into American taxpayers' cookie jar as well.

Even the hedge funds?
As for the insurance companies and others with bailout visions dancing in their heads, it appears that Paulson has met with hedge fund managers and insurance companies, all of whom would like their own share dose of taxpayer largesse. The insurance companies' needy feeling apparently relates to some weak earnings reports they have in their sights. My reaction to them? "Too bad!"

But here's the one that'll knock your socks off: As you no doubt know, General Motors (NYSE:GM) and Cerberus, which owns 51% of GMAC (GM's once-exclusive lending arm) along with most of Chrysler, have been in deal talks. Those talks now have shifted to involve guaranteeing that GMAC -- which, in addition to its auto loans, has moved rather unsuccessfully into mortgage lending -- can qualify to become a bank holding company.

Achieving that structure would permit GMAC to receive equity funding as part of the Treasury Department's bailout program and have its debt temporarily guaranteed by the FDIC. The two last two Wall Street investment banks, Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), have recently adopted the previously unthinkable approach of becoming bank holding companies for similar reasons.

For GMAC to qualify for a bank registration, GM would need to sell half or more of its GMAC ownership (it currently owns the other 49% of the financial arm) so that it would own no more than 24.9% of the unit. Such a restructuring would prevent GM from having a controlling interest in GMAC under federal law.

More help for the autos?
So here's my simple question: Why? The federal government has already anted up $25 billion in low-interest loans for GM, Ford (NYSE:F), and Chrysler. Why now permit a restructuring that would make it easier for GM and Chrysler to dig deeper into the taxpayers' coffers?

Would such a step lead to a more capable automobile manufacturer? As an article in The Wall Street Journal pointed out, "It is unclear … how merging the two ailing automakers would make the combined company more competitive against leaner and healthier rivals such as Toyota Motors (NYSE:TM) and Honda Motor (NYSE:HMC)." So the new structure would be based purely on financial opportunism.

Wisdom from France
Beyond that, here we are, bearing down on turning the U.S. financial system into a neatly socialistic enterprise. And amidst that totally unexpected legerdemain, the most sensible comments these days appear to be emanating from -- of all places -- France. That country's president, Nicolas Sarkozy, has offered up a seemingly unassailable opinion: "A new form of capitalism is needed, based on values which put finance at the service of business and citizens, not vice versa."

The world has taken a dramatic turn when the most astute observation on the economic system that has propelled our nation for two and a half centuries now emanates from Paris.

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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned above. He does welcome your questions or comments. The Motley Fool has a disclosure policy.