The mother of all bailouts is upon us — the only question now is who gets a life jacket, and who doesn’t. We may not yet have details on the plan to create a “troubled asset resolution program,” or TARP as some are now calling it, but it hasn’t taken long for Congressional Democrats to weigh in on the matter — various published reports Friday said that Democrats have demanded that any plan to created an entity to buy up bad bank assets be tied to further mortgage relief for troubled borrowers. “Bad lending practices and lax oversight are the root cause of this crisis,” said Senate Banking Committee chairman Chris Dodd (D-CT) in a statement. “As such, a comprehensive and constructive proposal must include relief for millions of American homeowners facing foreclosure.” You can bet that sort of thinking will be challenged by more than a few taxpayers loathe to see their money used to bail out borrowers that made (or were forced into) bad decisions. But it isn’t just Democrats voicing concern — at least one key Republican has strong concerns as well. “Congress is not going to rubber stamp something,” said Richard Shelby, the top Republican on the Senate Banking Committee, in a report published by Bloomberg News on Friday. “This could be the biggest bailout in the history of the country and could ultimately cost $500 billion to $1 trillion,” he said in an interview on Bloomberg Television Friday afternoon. “You have to ask, who is paying for this? I would submit to you it is always the taxpayers.” President Bush changed course dramatically on Friday as well, after months of reassuring the American public that the U.S. economy was “fundamentally strong.” In remarks at a press conference Friday, the President instead referred to “the precarious state of today’s financial markets.” Read the President’s full remarks at WSJ. Will it work? How bad was it? More than a few market insiders expressed concern at the Fed and Treasury’s plan, to the extent that it involves resurrecting the Resolution Trust Corp., which was created to manage the liquidation of bad assets tied to the S&L crisis in the late 1980s and early 1990s. But other sources, while still uneasy with the move, suggested to HW that very few still understand just how close to the edge the financial market really was on Thursday. “I think it is a very bad idea,” said an ABS/MBS analyst that spoke with HW on condition of anonymity. “The RTC dissolved bad institutions, used securities markets which this disaster has shut down — so this plan has no out for the taxpayers.” Another source, however, suggested the move was necessary. “Basically, market participants — the people really in there — felt the market died on Wednesday [and] without Paulson’s announced plans this morning, we were toast,” the source said, under condition of anonymity. Needed or not, an equity fund manager that spoke with HW was blunt in the outcome that he believes lie ahead: “I think we eventually lose our AAA rating because of this.” “It sounds like there’s going to be a giant dumpster for illiquid assets,” Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management told Bloomberg News. “It brings up the more troubling question of whether the U.S. government is big enough to take on this whole problem.” In April, Standard & Poor’s Ratings Services suggested that the ailing GSEs alone might be enough to threaten the U.S. government’s AAA credit standing, a move many scoffed at when it was made. “We believe [the GSEs] pose large contingent fiscal risks that recent policy decisions aimed at supporting the U.S. mortgage market have made even larger,” wrote S&P analysts John Chambers and Nikola Swann at the time. “If these risks were to translate into increased government debt, they could even hurt the U.S.’s credit standing.” Well-regarded analyst Michael Pond at Barclays Capital Inc. suggested Friday that increased government debt is a forgone conclusion at this point; he said that the U.S. may have to borrow an extra $700 billion to $1 trillion, according to a Bloomberg News report. While market insiders expressed strong reservations about the move, industry associations wasted little time backing the Treasury. “The broader steps outlined by Treasury are aimed at ending the further meltdown in the financial markets and are designed to minimize the resulting impact of the market turmoil on the broader economy,” said John Courson, COO at the Mortgage Bankers Association. “It is another step in the long-term process of restoring a balance between the supply and demand for housing in a number of markets and thus addressing the continuing problem of mortgage delinquencies and foreclosures.” “CMSA supports the decisive action by Treasury to address the root causes of the acute stress in our capital markets system,” a statement by the Commercial Mortgage Securities Association read, which said the group “stands behind the government’s granting of Treasury’s request for maximum discretion in its potential future purchases of illiquid assets.” SIFMA president & CEO Tim Ryan, OTS director during the S&L crisis, called the program outline by Paulson “bold and very necessary.” Disclosure: The author held no relevant positions when this story was published; even if he wanted to, he couldn’t, thanks to the SEC. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.