The Bailout Is a Bargain

Despite tea party protests to the contrary, the Wall Street bailout is costing taxpayers much less than feared -- so far.

AP Photo/Seth Perlman

Protesters carrying signs and American flags participate in a tax day tea party rally at the Illinois State Capitol in Springfield, Ill., April 15, 2009.

Anyone who takes tea with friends will tell you: The parties are painless. It's the gossip that hurts.

In the same way, today's antitax, antispending movements aren't the problem, it's the dangerous misconceptions they spread about the government response to the financial crisis.

Their argument -- that huge tax hikes are coming or have been implemented to pay off bailouts for banking fat cats -- betrays a lack of understanding of the government's approach to solving the financial crisis. When protesters or critics complain about the $10 trillion-plus spent on the Wall Street bailout, you can understand how their estimates of the number of protesters in the streets last week were slightly, well, inflated.

The truth: No one's paying new taxes directly related to the bailout. And most of the government rescue packages offered to the banks have gone untapped or are being repaid.

It doesn't take a lot of checking to confirm this. ProPublica, the investigative journalism site, thoroughly tracks the multiple government programs and has filled in the blanks for many programs that are less than transparent. (Or, if you're on the go and want your bailouts simply illustrated, there's a cool little iPhone application called BailoutWatch that monitors more than two dozen government programs, such as the $245 billion Citigroup Inc. loan-loss provision and the $80 billion Credit Union Deposit Insurance Guarantee program.)

Make no mistake, U.S. taxpayers are on the hook for a lot of money. The government has spent or expects to spend about $2.4 trillion in the next few months to keep the financial gears moving. It's a stunning amount of money made worse by rage-inducing missteps such as the bonus debacle at American International Group Inc. and the initial lack of direction for the Troubled Asset Relief Program.

We'll shake our head about those mistakes someday, provided the government plan works as hoped.

But the misinformation surrounding Washington's aid to Wall Street is obscuring exactly how the bailout funds are being used, and it's pressured lawmakers to focus on constituent complaints instead of working on solutions.

If the economy does recover within a year, we'll have spent a lot to rescue the financial system, but nowhere close to the 14-digit figure flogged by tea party protesters.

In fact, there's no way the government will spend that much, because many of the 26 bailout programs aren't being used much, according to Federal Reserve and Treasury Department statistics. For instance:

• Banks have tapped the FDIC's Temporary Liquidity Guarantee Program for $297 billion so far. That's about 20% of the total $1.5 trillion allocated. This is the biggest of the government programs, and banks pay 0.5% to 1% interest for the right to borrow the money depending on how long they keep it.
• During its first month, the Term Asset-Backed Securities Loan Facility, or TALF, has only financed $4.7 billion in consumer debt, far below the $1 trillion allocated. In addition, participation is declining with each new funding cycle.
• The Money Market Guarantee Program, aimed at insuring money-market funds against losses, hasn't spent a dime. It covers up to $3.8 trillion in money-market debt. This program is actually making a small profit, because participating funds are required to pay a fee.
• Other than the stimulus bill, the program with the biggest outlay so far is the Troubled Asset Relief Program, or TARP. More than $570 billion has been committed, but less than $400 billion has actually left the Treasury Department. Like most of these programs, it's unclear how much of this money will be repaid, but most banks say they're either ready or capable of giving it back. If not, they have to pay a 5% annual dividend to the government. In just the first three months of this year, the government has collected $2.52 billion in TARP interest.

You get the idea. Most of these programs were designed as backstops and as proof that the government stands behind the country's private financial system. The government is extending its own credit line to banks until the private sector can repair its own.

Recovery, when and if it occurs, will render many of these programs obsolete. The actual cost to taxpayers will be either negligible or drastically less than the most dire forecasts suggest.

Of course, taxpayers stand to lose more if the economy worsens and the financial system losses deepen further. It's not hard to imagine a scenario in which high unemployment leads to bigger loan defaults, setting off a domino effect of lower home prices and bank failures. Americans have $2 trillion in credit-card debt, and banks are holding that, too.

If that scenario comes to pass, financial companies could tap every dollar of the government's massive credit line.

The International Monetary Fund on Monday projected banks world-wide will need an additional $875 billion in capital by next year to get reserves to precrisis levels. That means most banks will need to raise cash through the public and private markets -- or, failing that, from the government.

But potential losses aren't the same as real ones.

Our national debt already stands at $11 trillion. Most of that debt was run up in the last eight years, when government spending outpaced declining tax revenues. The Iraq war is close to costing the nation $1 trillion. Hurricane Katrina cost us about $110 billion.

We ran up a huge tab for our kids well before the bailout, but it's unlikely that such an inconvenient fact will be the talk of the next tea party.

Write to David Weidner at david.weidner@wsj.com