Yes, the cost of the bailout is advertised at $700 billion.

But it could reach much higher.

We see the trillion-dollar figure in several places; it seems to have originated with Harvard economist Ken Rogoff, who figured the cost at about twice as much as the Resolution Trust Company. The RTC cost the nation 3% of GDP as it took over crumbling S&Ls in the ’90s. This debacle is much more serious, he guesses; it will cost at least twice in GDP terms...say, 7%...or about $1 trillion in round numbers.

Where do the feds get that kind of ready cash?

Ah...they sell their souls...liquidate their rights...and wrap chains of debt around every American’s neck. The U.S. government deficit is already $490 billion. With the cost of the slump...and the bailout...it is expected to top $1 trillion...or more.

Not since the ’30s has the United States seen such sweeping reorganization of its economic institutions. Not since Roosevelt...and the New Deal.

But wait, the United States was supposed to be a leader in freedom.

We were so adamant about it we practically forced it upon the poor Arabs and Afghanis... But now that people are losing their houses and Wall Street bonuses are in jeopardy...freedom is the last thing we need.

Ban short selling! Nationalize the mortgage lenders! Nationalize the insurers!

Take on the bad debts and bail out the bad investments of the whole financial industry! Spend a billion. Fifty billion. A thousand billion!

“How fabulous,” writes Brian Reade in the British tabloid The Mirror . “Thanks to the way it props up the USA’s two biggest mortgage firms, more than half of American homes are now effectively owned by the state...

Who’d have imagined that when the most right-wing of neo-cons leaves office 50% of the Land of the Free will effectively be [public housing]”?

Yes, almost every imbecilic act we could imagine has become fact. No exaggeration is too extreme. Life imitates farce.

A few years ago, in a moment of lighthearted hyperbole...we suggested that the War on Terror was such an absurdity... “Why not a War on Bear Markets?” we wrote.

And now, we have one!

Yes, the Prime Minister of England, Gordon Brown, compared the U.S.-led, global fight against falling asset prices to the “war against terrorism.”

And yes, it is similar in many respects. It will cost about the same amount – over $1 trillion. And it will produce the same general results: less freedom for everyone.

Already, the dems and reps are warming up for a major battle against free markets.

Both parties seem to think that it would be shameful for prices of debt and equity to fall to what they are really worth – that is, to what willing buyers would pay for them. Over the weekend, the pols joined hands in trying to prevent it.

The $700 billion program allows the feds to buy almost any piece of junk that investors don’t want. It says so right here in the Financial Times . The feds can buy “residential and commercial mortgage-backed securities, with discretion for the Treasury Secretary and Fed chairman to add others as needed.”

We’d put that last phrase in italics, if we knew how to do so. Because it leaves the door of the fed’s EZ lending bank open to anything...24-hours a day.

The Treasury has a “blank check...to buy troubled assets,” says the FT .

“This was very necessary,” said Hank Paulson. Then, slipping from farce into Dada or the theatre of the absurd: “We did this to protect the taxpayer,” (showing no confidence that American taxpayers can actually protect themselves .)

While writing a blank check, the politicians also limbered up for their election campaigns...each trying to come up with catchy new slogans and new ways to punish Wall Street publicly, (while actually trying to let them off the hook for billions of dollars worth of bad investments).

“Greed,” said Obama, was the source of the problem. “Greed,” said McCain, was the real problem. Cap Wall Street salaries! Reregulate!

This was “not time for ideological purity,” suggested John Boehner, the Republican House majority leader, calling for unity. No, this was time for pandering...posturing...and promises.

And so, principles were out the window.

“I’m a free-market non-interventionist,” Boehner continued, “But we face a crisis, and if we don’t act, and quickly, we’re going to jeopardize our economy.”

Principles are fine, in other words, until they get in the way of house prices!

*** Roosevelt is back. But which Roosevelt? Obama is positioning himself as the Franklin version: ranting against free markets and Wall Street.

McCain prefers Teddy – an interventionist too, but one who preferred meddling in the affairs of foreign nations to meddling in the domestic economy.

Which was worse? Teddy, with his bullying guns? Or Franklin with his greasy butter?

Hard to say which did more damage.

The first set the United States on its imperial course... He was so worried that the vacillating Woodrow might not get the United States into WWI before it was over, he threatened to raise his own army and intervene on his own.

The U.S. has bumbled into practically every important fight on the planet ever since.

Franklin, meanwhile, set up Fannie and Freddie to help solve the nation’s housing needs. He set up dozens of other agencies, subsidizers and regulators. Taking Bismarck’s example for his model, he turned the United States from a basically free-market economy...to a “mixed economy” – with heavy government influence and control.

And now, we suffer both Roosevelts...both pay for both guns and butter. We bear the burdens of constant inflation and eternal war, in other words; and both will remain with us no matter which Roosevelt wins in November.

*** Niall Ferguson writes in today’s Financial Times . We like Ferguson. He usually comes to see the world the way we do; he is just a little slow:

“On one side can be seen the chain reaction of deleveragings as banks, other companies and households all battle to stabilize balance sheets that became much too highly geared in the days of easy money; as the resulting credit contraction and forced asset sales create a vicious downward spiral; as the slowdown spreads to Main Street and from Main Street to the world.

“On the other side are the Fed and the Treasury, desperately manning the monetary and fiscal pumps while trying to decide who is too big to fail and who is not.”

So, the war is on! The war on bear markets! The war against deflation! The war against good sense...

Keep your head down, dear reader. We’re not sure how this will end. *** A friend in Buenos Aires sends this analysis...

“Latin America has suddenly become very interesting. There are intersecting issues – domestic and geopolitical.

There is a general way to state this. In times of crisis between great powers, local issues get energized by the international conflict.

The changes in Russian-American relations reverberate in corners of the world that have been neglected since the Cold War. There are a lot of shifts taking place everywhere, and we have mentioned them all in previous Guidances.

Let’s focus on Latin America this week. That is not a place that has been really exciting geopolitically in the past, but it is getting there now.

“1. Bolivia nearing the boiling point: Bolivia is in a near civil war, with regional powers – particularly Brazil – looking on uneasily. The United States is confronting Evo Morales, the radical president of Bolivia.

It is a very traditional confrontation, with a Latin American radical challenging the United States. New powers like Brazil are in the mix, and Russia could use the crisis to give the United States other headaches.

We need to watch both internal and global implications.

“2. Venezuela and Russia: The Venezuelans and the Russians are getting close. The military implications are trivial at this point, but having a potential patron energizes Venezuela in new ways and gives it confidence.

We need to watch the effect on foreign companies in Venezuela and long-term collaboration.

“3. Colombian guerrillas: The Revolutionary Armed Forces of Colombia (FARC) had ties to Cuba and the Soviets in the old days. Those FARC leaders who are still alive and not in nursing homes still have active contacts.

The Russians could really jerk the American chain in Colombia – and depending on how the United States acts in the former Soviet Union, the Russians will do just that.

We need to watch the FARC now and see if it reaches out to the Russians.

“4. Nicaragua: Nicaragua – dormant since the 1980s – has its old President Daniel Ortega and its old rhetoric back, and it is backing Russia in Georgia to the hilt.

We need to watch Nicaragua and the rest of Central America, especially El Salvador, to see if this is going anywhere.

“5. Mexico’s cartels: The cartels in Mexico are fighting the government and each other. If Ukraine is invited into NATO, the Russians would love to give payback in Mexico.

The Russians used to have close ties to the Mexican left, and Russian organized criminal groups are currently involved in criminal activities such as prostitution and human smuggling in Mexico. And certainly, through the Cubans, the Russians know their way around Latin American drug traffickers.

“Instability in Mexico would be an interesting strategy for Russia – not that Mexico needs much help there. But the smuggling routes could carry all sorts of goodies into the United States.

“6. Cuba: Cuba remains the mystery. Havana is oddly quiet. Are there discussions going on with the United States?

There should be, as far as the United States is concerned, but with an election coming, such talks are hard to set up. The Cubans don’t seem to want to play the Nicaraguan game. One scenario is that after the election, the Bush administration could move to normalize relations with Cuba and take the heat.

The administration’s ratings will not matter and cannot go any lower. There is no evidence this will happen; it is just a theory.

“7. Russia’s behavior in Latin America: In general we need to see whether the Russians start renewing old friendships on the Latin American left, with intellectuals and ambitious colonels and majors.

“Watch Argentina, Chile and Brazil. They are the big targets always.”

Until tomorrow,

Bill Bonner