ANALYSIS: Bailout plan costliest rescue in U.S. history

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By Donald Lambro

The administration's emergency plan to buy up bad mortgages and other unmarketable assets will be the costliest economic rescue in U.S. history, pushing the government's annual budget deficit to more than $700 billion and preventing the next president from making good on many, if any, expensive campaign promises.

Private economists and former government officials estimated the massive cost to taxpayers of the latest bailout plan, now being written by Treasury officials and congressional leaders, at between $500 billion and $1 trillion.

That price tag would come on top of the several hundred billion dollars the government has already committed to backstop the investment bank Bear Stearns, the insurer American International Group Inc. and the mortgage finance giants Fannie Mae and Freddie Mac - all efforts to prevent a spiral of bankruptcies that threatened both the U.S. and global economy.

Not since the Great Depression has Washington intervened so massively to protect the economy. The bailout of the savings and loan industry, in the end, cost $150 billion. The Great Depression rescue programs cost less than $50 billion, though that much in 1935 dollars is more than $500 billion in today's terms.

What is certain is that the expenditures now will wreak havoc on the hopes of the current crop of presidential candidates. The winner of the presidential election will have to severely curtail his tax-and-spending promises, scholars say.

Related stories:Paulson resists calls for added help in bailout and Democrats vow to refine rescue plan

"Whoever walks into the Oval Office in January is going to be facing the largest deficit that any president will have faced in the history of the country," said former White House Chief of Staff Leon Panetta, who also served as President Clinton's budget director.

"The estimates I've seen as a result of our economic weaknesses we are suffering, the federal budget deficit is easily going to approach $700 billion when the new president comes in," Mr. Panetta told The Washington Times in a telephone interview.

The gross national debt now stands at more than $9.6 trillion, but that number could easily run over $11 trillion next year once all of the bailout's borrowing costs are fully accounted for.

But the magnitude of the bailout may in the end be lower than its upfront costs appear, economic policy analysts said, because the government bailout plan envisions recouping much of its cost when a variety of assets taken as collateral are sold at a later time for more than the government paid for them.