Housing legislation in the United States moved closer to becoming law last night with 272 Senators voting in favor of a rescue package versus 152 against. The bill, introduced in the House of Representatives now moves to the Senate where passage is highly likely ahead of the summer recess and Presidential elections this fall.

The bill would authorize the government to invest $30 billion dollars in Fannie Mae and Freddie Mac while insuring up to $300 billion dollars in refinanced mortgages. The housing crisis, now into its second year, shows no signs of abating and triggered the sub-prime mortgage debacle 12 months ago. Other assets, including stocks, bonds and some commercial real estate sectors have all deflated since mid-2007.

So what’s the bottom line for the United States and investors?

As a result of footing this enormous bail-out, the government will raise its debt ceiling to $10.6 trillion dollars from the current cap of $9.8 trillion dollars. Heck, what’s a few hundred billion dollars when you’re the Fed and you print your own fiat currency?

The nationalization of American housing has therefore begun. And not everyone in Congress and the public is pleased with this new legislative proposal.

Dissenting Senators yesterday exclaimed the bill, if approved, would ultimately cost taxpayers more than $1 trillion dollars as losses continue to grow. Adjusted for inflation since 1991, the last rescue (Savings & Loans) cost about $400 billion dollars.

Introducing a mortgage bill while housing values are still contracting might not be a good idea, and it’s certainly not a smart timing initiative. The bill is really focused on rescuing government agencies – Fannie and Freddie – both holding relatively inadequate capital ratios and growing more insolvent by the day. Fannie and Freddie finance more than 55% of all U.S. mortgages; a collapse of either entity would send the country and its financial markets into the abyss.

Once again the government is coming to the rescue of big financial firms. These giants, like Bear Stearns, are too big to fail. In the end, bail-outs will cost taxpayers in excess of a trillion dollars and longer term the United States will increasingly become a fractured financial power. The beginning of the end is now.

The sad truth is that in the absence of a Bear Stearns bail-out and a rescue of Fannie and Freddie, the global financial system would suffer a severe blow. Banks would tumble like dominos, a string of mortgage defaults would occur nationwide and a hard recession or worse would ensue.

Morale hazard argues against government bail-outs. But at what point is a bail-out justified if it saves or delays the economic day of reckoning? Is a government bail-out warranted if it saves the financial system?