The biggest financial bailout in history is before Congress this week. But the $700 billion proposal still leaves several questions unanswered. Money Morning’s Jennifer Yousfi says the price at which the US Treasury buys up distressed debt from the market will be crucial. If set too high, the burden on taxpayers will increase; too low and it could lead to another round of devastating writedowns.

U.S. Treasury Secretary Henry Paulson has requested sweeping new powers for the Treasury Department as he seeks $700 billion in government funds to purchase troubled financial assets from firms facing a lack of liquidity or investor confidence.

Over the weekend Paulson submitted legislation to Congress that he hopes will see the U.S. economy through the crippling credit crisis. In addition to the requested $700 billion, Paulson has asked that there be no judicial oversight to the plan and that the Treasury Department have sole discretion over which assets should be purchased.

“This is not a position where I like to see the taxpayer, but it is far better than the alternative,” Paulson said in an interview on NBC’s “Meet the Press.”

It is the government’s position that without this costly and unprecedented intervention, the economy could face a collapse akin to the Great Depression.

Congress pledged bipartisan cooperation to ensure the legislation makes it through the House and Senate, possibly by the end of this week. Democrats and Republicans pledged to not tie the bill to an economic stimulus package in order to speed up its passage.

“We will not Christmas-tree this bill,” Senator Charles Schumer, a New York Democrat, said yesterday in a television interview with “Fox News Sunday,” Bloomberg News reported. “The times are too urgent.”

If the bill is passed in its current form, it will increase the nation’s debt to $11.315 trillion from $10.615 trillion, according to Bloomberg data.

The measures proposed by the administration, the Treasury and the Securities Exchange Commission “require us to put a significant amount of taxpayer dollars on the line,” President Bush said, MarketWatch reported.

“But I’m convinced that this bold approach will cost American families far less than the alternative. Further stress on our financial markets would cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, cars, and college tuitions,” Bush said.

Some analysts questioned the plan, stating the troubled assets, most of which are tied to subprime mortgages, could be difficult to value in the current capital market environment that remains all but frozen.

“There is no doubt there could be disagreement on what the fair value for these securities is,” Lawrence Levine, director at RSM McGladrey, told the Financial Times.

Even if the Treasury Department is willing to buy the troubled assets, if the purchase price is lower than the financial firms’ current book value, the government’s plan could lead to yet another round of multi-billion dollar write-downs.

Source: Government Plan to Stabilize U.S. Financial Markets Has a $700 Billion Price Tag