The “biggest intervention in financial markets since the 1930s” is coming. The devil is in the details, to be sure, but one thing seems for sure: It’s going to cost a lot.

“Several hundred billion” is the estimate Treasury Secretary Henry Paulson used this morning. The basic function, Paulson said, will be to address the “root cause” of the financial crisis, “the illiquid mortgage assets that have lost value as the housing correction has proceeded.” The “case-by-case” approach taken by the government over the past six months to stem the crisis has not succeeded in solving that root cause, Paulson said.

Just how the government will do that is as yet unclear. Paulson and other federal officials met with congressional leaders last night, and the reaction was positive -- though there was notable skepticism from Republicans. Democrats, the New York Timesreports, see the massive bailout as an opportunity to also get relief for “homeowners faced with foreclosure.” The legislation will be hashed out over the next several days and is likely to be voted on next week.

The leading proposal is for the federal government to “purchase assets at a steep discount from solvent financial institutions and eventually sell them back into the market,” as the Wall Street Journaldescribes it. “According to a top congressional aide, the Treasury Department wants authority to either control the program or have it be a separate division of the government,” the Journal reports.

Paulson made this argument for using billions in taxpayer dollars:

The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy. This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible. The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars. I am convinced that this bold approach will cost American families far less than the alternative – a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.

Such an entity – or such authority given to the Treasury – would be unprecedented. The government has sold off assets of failed savings and loans (the Resolution Trust Corporation) and has bought preferred stock in banks to inject capital (the 1930’s Reconstruction Finance Corporation). But this would differ in certain key aspects from any other past interventions.

The new entity will buy bad loans from solvent banks, not failed banks. As the Journal reports, “a big question still to be answered is how the government will value the assets it takes onto its books. One possible avenue could be some sort of auction facility, so that the government would not have to be involved in negotiating asset values with companies.”

But while the financial companies will likely take steep losses on these assets, the taxpayers will be assuming the risk of taking them on.

Certainly the markets are ecstatic over the prospect of such an intervention (the Dow has climbed some about 770 points since the rumor first broke yesterday). For taxpayers, it’s likely to be a more sober undertaking.