White House resists pleas for mortgage bailout

By Glenn Somerville - Analysis

WASHINGTON (Reuters) - The U.S. government may be left little choice but to lead an effort to relieve distressed mortgage holders because a tide of foreclosures that could swamp the economy will keep swelling without such a plan.

As clamor rises for federal help for homeowners who face losing their homes, U.S. Treasury Secretary Henry Paulson seems to be digging in his heels against a broad-brush effort.

Democrats say refusal to help homeowners allows the housing crisis spill over and taint the entire economy, risking recession, but the Bush administration says a bailout is not only unnecessary but would be excessively costly.

In the end, many analysts think the government's hand will be forced -- if not during the remaining 10 months of the Bush administration then early in the next one.

"I think government involvement of some kind, just as went on during the savings and loan crisis in the 1980s and during the 1930s, is inevitable," said Allen Sinai, senior global economist with Decision Economics Inc. in Boston. "There's simply too much bad mortgage paper out there," he added.

Then there are "human casualties," as people see their credit blotted, making them wary about spending and putting the economy is at risk of recession, if it is not in one already.

TAXPAYERS AT RISK

"Ultimately some taxpayer money will be necessary, I believe, and in fact some taxpayer money already has been put up in the effort to improve the credit situation within the financial system," Sinai said.