Let’s start at $500 billion. Why? That was the figure Paulson’s emergency elixir was thought to cost…as recently as Friday. In a characteristically misguided effort to restore calm to the markets, the federal government proposed a plan that involved purchasing a half trillion dollars of carcinogenic mortgage-backed assets.

The very same toxins that brought three of Wall Street’s Big Five to their knees (Bear Sterns, Lehman Bros. (NYSE:LEH), and Merrill Lynch (NYSE:MER) would, under the proposal, find their way onto the balance sheet of the United States Treasury. Given the state’s abysmal accounting record (think Social Security, Medicaid, Medicare and the largest national debt in the history) we should have been wary of the emergency plan’s budget from the get go.

By the time we wrote to you over the weekend, that figure had already ballooned to $700 billion.  Bloomberg provided the details:

“The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.

The article went on to call the government’s move “the most far-reaching federal intrusion into markets since the Great Depression.”

A couple of weeks ago we joked that the next illogical move for the government would be to step in and take over debts and obligations of hairdressers and private salon owners. As events continue to unfold, we find our ability to utilize comedic hyperbole increasingly undermined.

Now, as if infected by some mutant strain of elephantitis, the emergency plan could swell to well over $2 TRILLION.

Today we learn that the Treasury Department has suggested the new program include a much wider variety of asset-backed securities.

“The change suggests the inclusion of instruments such as car and student loans, credit-card debt and any other troubled asset,” Bloomberg reveals. “That may force an eventual increase in the size of the package as Democrats and Republicans in Congress negotiate the final legislation with the Bush administration…”

Just to give you an idea of the size of the ballpark, we offer a chart Dan Denning of the Australian Daily Reckoning kindly forwarded to us this morning.

[The number you’re looking for is the one in the bottom right corner.]

“That means that though he’s only asked for $700 billion up-front to deal with the bad assets, the Paulson plan could eventually require as much as $2 to $3 trillion in new Treasury money to buy asset-backed securities,” reckons Dan.

One of the many questions here, at least for reasonable human beings, is whether or not the government can revive the nation’s economy by saddling its citizens with heretofore unseen levels of new debt. The shift from private liability to public shackle begs another question too, namely, where will all this money come from? Given that the government can really only turn to tax revenue or the printing press, the answer, simply and regrettably, is “You and I.”

Capitalism, it seems, is fast turning into the goose that laid the golden egg…with Paulson & Co. steadying up its head on the chopping block.

Source: Guillotine Over Wall Street