Want a federal bailout? Get in line.
Now that the Treasury Department has finally announced its rescue of mortgage giants Fannie Mae and Freddie Mac—at a cost of up to $100 billion each—isn't it time to start tallying up all this largesse? A hundred billion here, a hundred billion there, maybe it doesn't seem like much at first. But before you know it, you've drained the treasury of the world's richest country. And besides, more rescues seem to be coming. Here's a tally of the bailouts so far:
The stimulus package. Maximum taxpayer cost: $150 billion
What taxpayers got: Free money, up to $1,200 from the government per household, to spend as they wish. Early research shows most recipients have used the money to pay down debts or boost their savings. Good for them, but bad for the economy, which benefits most in the short-term from spending, not saving.
Bear Stearns. Maximum taxpayer cost: $29 billion.
What taxpayers got: Prevented an even worse meltdown in the financial markets—at least for a while.
Fannie Mae and Freddie Mac. Maximum taxpayer cost: $200 billion.
What taxpayers get: The mortgage market won't completely collapse. Interest rates may even drop a little and credit gets a bit easier.
IndyMac and 10 other banks. These insolvent banks had billions in deposits that were taken over by the Federal Deposit Insurance Corp. Taxpayers won't foot the bill directly, because FDIC takeovers are funded by insurance that banks pay for. But those premiums are likely to rise across the industry, and banks may pass some of that cost onto consumers.
What taxpayers get: They don't have to worry about losing their deposits just because their bank acts reckless.
So far, all these bailouts add up to about $400 billion the government could end up doling out to keep key parts of the economy solvent. As the zeroes and the billions mount, we tend to get a bit numb to the magnitude of the number. But it's big. The savings and loan fiasco of the late 1980s—perhaps the biggest government bailout since the Great Depression—cost taxpayers a mere $130 billion. And $400 billion dwarfs government spending on most other things. It's equivalent to more than half of the nation's total annual budget for defense or for Social Security payments. And it's more than one tenth of all federal spending in a given year.
Worse—there's more to come. Here are some of the bailouts still in the works:
The Detroit automakers. A bill working its way through Congress would commit up to $6 billion in low-interest loans to General Motors, Ford, and Chrysler. Some are pushing for loans of up to $50 billion. Yeah, they're loans, not grants, and theoretically, the companies would repay them. Unless...something...happens.
More banks. The FDIC says it's closely watching 117 problem banks at risk of insolvency. Those banks control about $78 billion in assets. Then there's the daily drama of troubled Lehman Brothers, where investors wait to see whether a white knight will surface, cash in hand, or a Bear Stearns redux takes place.
The Obama Stimulus. Democratic presidential nominee Barack Obama has proposed that a second round of stimulus checks be mailed out if he takes office in January. He hasn't attached a price tag yet, but anything broad enough to be meaningful—and appease all the right interest groups—would probably start at $100 billion or so. Maybe 2009 will be the Year of the Bailout II.