Bail me out

Responsible voices have been warning for years that mortgage giants Fannie Mae and Freddie Mac held massive unwieldy portfolios of mortgages -- almost half the nation's mortgage debt -- while required to keep capital reserves of only 2.5 percent (compared to a normal bank's 10 percent), leaving them highly vulnerable to any reversal in real estate prices.

The big investment banks had also been allowed to buy and sell home mortgages, bundled up and sliced like sausages into "mortgage-backed derivatives."

America's financial sector had become about as "diversified" as an investor with every penny plowed into Suzie's Online Massage Parlor.com.

Yet House Financial Services Chairman Barney Frank, D-Mass., and others pooh-poohed such warnings. No urgency was seen on the Hill five years ago, two years ago, even last winter.

Then, this hectic week, only a month away from a national election, when no member of Congress wants to be accused of "dragging his feet during a national emergency," suddenly Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and -- in a nationally televised address Wednesday evening -- even President George W. Bush are unanimously making noises about how there's no time to lose, pushing the pen into the congressional fingers and insisting that to "avoid a major recession" the 535 men and women normally known as the world's greatest "deliberative body" wait not a day, no time to waste.

Even presidential candidates John McCain and Barack Obama are called in to lend their tacit support in a White House photo opportunity: "Sign here on a taxpayer loan to bail out poorly managed and mis-regulated financial institutions to the tune of -- we can only be approximate here, you understand, but about, oh ... sevenermillibillionders."

"About what?"

"About seven hundred billion dollars. Just a ballpark figure, you understand."

"Is that billion with a 'B'?"

"Just sign here."

Early Thursday, Banking Chairman Sen. Chris Dodd, D-Conn., and Republican Sen. Bob Bennett, among others, said negotiators from Congress and the administration had arrived at a deal that could win approval, with little of note left to resolve.

Under that deal, Congress would insist on some window dressing to create the impression members were driving a hard bargain -- doling out the money in "small" parcels of $100 billion here, $350 billion there; placing ceilings on executive compensation in the bailed-out banking firms, etc.

But the end-zone celebrations appear to have been a tad premature. Later in the day, House Republicans led by Rep. Eric Cantor proposed an alternative plan calling for a mortgage-backed security insurance fund, rather than taxpayer-funded purchases of the securities. And a spokesman for House Republican Leader John Boehner complained the speed with which Sen. Dodd's plan was put together was designed "to deny Senator McCain a role in trying to craft a bipartisan solution."

Regardless of the end result of these negotiations, it seems reasonably safe to predict four things:

First, there will be some kind of bailout, and whatever price has been placed on it will prove too low. The precedent is the bailout of the savings and loan industry in the late 1980s, which ended up costing $160 billion -- back when that was real money.

Second, printing up even $700 billion in greenbacks that the government doesn't now have will spur considerable devaluation of the dollars in every American's paycheck and bank account, chopping their buying power for years to come.

Third, this will not be the last bailout. Detroit's auto firms have already visited Washington with their beggar's cup and won approval from the House. Who's next?

But the final casualty will be much harder for accountants to tally on their calculators and yellow pads.

The final cost will be the erosion -- if not outright extinguishing -- of the willingness of the American people to trust that their "leaders" in Washington can be trusted, that they have a firm grasp on such matters, that they're always gazing steely-eyed into the future, working in our best interest, telling us the truth about the long-term ramifications of what they're up to.

Such a birth of renewed cynicism may be fully appropriate. But politicians may be surprised at where it now crops up -- at the kind of response they get next time they ask, "Don't you trust us?"