The US Treasury Department announced Sunday that the projected long-term cost of the U.S. government’s bailout of the nation’s big banks is going to be at least $200 billion less than previously thought.

The Obama administration had estimated the cost to taxpayers of the $700-billion Troubled Asset relief Program, or TARP, would be $341 billion but now says it can cut that by $200 billion.

“That improvement is driven by the fact that Treasury’s investments to stabilize the system are delivering higher returns than anticipated and that Treasury does not anticipate having to draw upon the full $700 billion in TARP authority,” the Treasury official said.

Congress approved the TARP program when the financial crisis was raging last year so that the government could inject money into ailing banks and keep them from dragging the whole financial system down.

It has never been popular politically so the administration is eager for any good news to tamp down anger at the bailouts.

While this is undoubtedly good news, it does beg the question; where is the money coming from? To find an answer many consumers need only open their credit card statements.

In May 2009, President Obama signed a law that would, among other things, prevent card issuers from raising rates on existing balances unless the borrower was at least 60 days late and would require the original rate to be restored if payments are received on time for six months. The law would also require banks to get customers’ permission before allowing them to go over their limits, for which they would have to pay a fee.

Unfortunately this law is not set to go into effect until February, 2010. In the meantime banks have been free to do as the wish. Since May, credit card issuers have been rushing to increase interest rates to historic highs of more than 30 percent, cut credit limits, and add new fees, even for customers who pay their bills on time.

US Representative Barney Frank, the Massachusetts Democrat who chairs the Financial Services Committee and is a leader in the effort to revamp credit card policies, has said banks have “abused’’ the nine-month period granted them to re-tool their practices.

“I didn’t think they would be as blatant as they were about doing this,’’ he said. “There’s no justification for raising rates retroactively. This is really just a way for them to make more money.’’

With financial markets now firming up, without providing significant lending opportunities for small businesses, and banks lining up to repay their TARP funds, Treasury, and the administration, will have some room to consider whether and how some TARP funds can be used for other purposes like job creation and deficit reduction.

With unemployment in the double digits and the specter of Option-ARM loan resets, that could increase many monthly mortgage payments by as much as 80%, not projected to peak until the second quarter of 2011 we think it is a fair consideration to use the remaining funds to help stabilize the job market and restore the country to economic growth.

The budget deficit hit a record $1.4 trillion in fiscal 2009 and is expected to be around the same in fiscal 2010 because of the government’s huge borrowing needs.

President Obama is scheduled to deliver a speech on job creation on Tuesday.

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1. Stephen’s Twitter Weekly Updates for 2010-03-07
2. It’s Time To Really Fix The Community Reinvestment Act?
3. The Health Insurance Debate Is a Jobs Debate
4. Big Help for Small Nonprofits in The Healthcare Reform Act
5. Community Reinvestment Act Public Testimony

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