IMPEACH BUSH

Last week, as federal regulators seized Washington Mutual in the largest U.S. banking failure, Congress was grappling with whether to spend $700 billion of public money to fix the financial industry's troubles.

Lawmakers' initial reaction to the Treasury Department's staggering request: shock. That sum amounts to about a quarter of the U.S. government's annual spending. It's more than the Pentagon's annual budget, more than the nation pays out each year in Social Security benefits and more than the federal government's cost for Medicare and Medicaid.

Members of Congress then asked the questions that continue to be on many Americans' minds:

• How will the U.S. pay for this program and the previously announced aid to Bear Stearns, Fannie Mae, Freddie Mac and American International Group? (The Washington Mutual seizure doesn't add to the U.S. tab because the bulk of WaMu's operations are being taken over by J.P. Morgan Chase without cost to the Federal Deposit Insurance Corp.)
• And what will these efforts end up costing us all in taxes?

Part of the answer is known today but other aspects -- including the ultimate tab for these rescue programs -- may not be clear for years or even decades.

$1 Trillion Commitment

The total government commitment so far in its current and proposed bailouts: $1 trillion. But most of that money would give the government a claim on assets -- such as home mortgages and insurance operations -- that have actual value.

In each case, government officials took action because they believed the nation's financial system -- including banks where you deposit your money and Wall Street firms that run many markets -- risked a breakdown. Such a meltdown would make it harder for regular consumers and businesses to borrow money and make major purchases, putting a major dent in the $14 trillion U.S. economy. [Piling Onto Uncle Sam's Lap]

The plumbing of the financial markets and economy "is all esoteric Wall Street stuff," Federal Reserve Chairman Ben Bernanke, a former college economics professor, explained to lawmakers last week. "It doesn't have any meaning to people on Main Street, but it connects very directly to their lives. If the credit system isn't working, then firms cannot finance themselves. People cannot borrow to buy a car, to send a student to college, to buy a house."

Most of the government's bailouts are tied to the housing-market slump and all the toxic mortgage loans and mortgage-backed securities held by banks and other financial institutions.

Biggest U.S. Bailout

In the rescue plan Congress was negotiating last week -- at $700 billion the biggest bailout in U.S. history -- a key goal is to remove much of those soured mortgage securities from banks' books, possibly through an auction system.

The government -- taxpayers, essentially -- would then hold those assets until they can be sold off in a more normal market once the economy and housing market recover.

A key point: The $700 billion would come from selling debt to the public, raising the total federal debt, which is approaching $10 trillion now.

But it's not direct government spending, which shows up as part of the U.S. budget. If the mortgage debt loses value over time, however, the U.S. would have to record those losses as spending. That could increase the budget deficit, which eventually must be offset by higher taxes or lower spending.

So taxpayers face the risk of losing some part of the $700 billion -- but could also turn a profit if the U.S. ends up selling those holdings for more than the purchase price.

First Up: Bear Stearns

The earlier rescue efforts also involve uncertainty about the ultimate cost to taxpayers. Back in March, the government worried that the failure of investment bank Bear Stearns would lead markets to fall apart globally. So it agreed to take on $30 billion worth of the firm's assets, including some of those bad mortgages, to help its new buyer, J.P. Morgan Chase.

The Federal Reserve plans to hold onto those assets for perhaps a decade before selling. J.P. Morgan will cover the first $1 billion in losses, if any. Taxpayers are highly unlikely to lose all $29 billion they have on the line, but could lose some of it.

Earlier this month, the action moved to mortgage giants Fannie Mae and Freddie Mac. Because many investors assumed they were like public entities, the U.S. stepped in and took them over when the companies became too unstable to support the housing market by providing enough new mortgages.

The Treasury Department plans to inject up to $200 billion in capital into the firms. Some of that money may be lost because the firms' mortgage securities continue to lose value as home prices decline. But it's still unclear how much money taxpayers will kick in.

Less than 10 days later, the government stepped in again, to aid giant insurer AIG. The U.S. provided a loan of up to $85 billion. Half of that had been tapped by the middle of last week. But the terms were onerous: An interest rate above 11% and rights to an 80% government stake in the company.

AIG still has profitable insurance lines, and some of its businesses could be sold to pay the government back. So that bailout may not cost taxpayers anything directly.

With all these rescue efforts, even if the U.S. government profits after its expenses, there's still a broader unquantifiable cost: whether bailing out financial institutions and markets will create expectations for more taxpayer support down the road when Wall Street or big businesses get into trouble.

Government officials acknowledge that risk. But they say taxpayers are being helped in the long run because stronger financial markets will translate into more economic growth and higher tax revenue.

Write to Sudeep Reddy at sudeep.reddy@wsj.com