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INTERESTING BAILOUT FACT OF THE DAY.
The FT takes a look at how governments have made out after investing in banks to keep them from failing. The U.S. has the best returns:
In contrast to Switzerland, which sold its 9 per cent UBS stake for a SFr1.2bn ($1.1bn) gain last week, the world’s other large economies – except the US – are sitting on combined losses of $10.8bn relating to their holdings in the equity of listed banks they bailed out over the past 12 months.The US government, by contrast, is sitting on a paper profit of almost $11bn on its 34 per cent shareholding in Citigroup, its only direct stake in a large financial institution.
The key word there is, of course, "paper" profit. But given the fact that the 'let the banks earn their way out of insolvency' strategy has been working thus far (even if it is risky and offers pernicious incentives to the overall financial sector), those paper profits may eventually be realized. More clarity on what will be done about toxic assets would be reassuring on this point.
Update: Commenter SR points to a smart Washington Monthly article on successful bailouts of the past; while it doesn't really analogize well to the financial sector bailouts, it does make a lot of sense in the context of U.S. investments in General Motors and Chrysler.
-- Tim Fernholz
COMMENTS (2)
readers might want to check an article several months ago in the washington monthly on the history of govt bailouts. since the lockheed bailout in the early 70s in the nixon administration the govt has made money on every discretionary bailout (as opposed to those required to protect bank depositors). the most interesting one was the bailout of the freight operations of the penn central railroad in which the govt actually ran the railroad for several years and then sold it off at a profit. it began in the ford administration and continued into the reagan administration. i am not sure if the bailouts are good policy-it did little to change the business practices of the bailed out institutions-but the govt will not lose money on it and may even make money.
Posted by: sr | August 24, 2009 1:17 PM
The U.S. government has also made some profits from the bank bailouts:
$1.27 billion profit from Morgan Stanley bailout (via NPR's Planet Money)
and over a billion from Goldman Sachs warrants (CNN)
Of course, the government probably could have gotten even more if they had driven a harder bargain (e.g., forcing counterparties to AIG to take less than 100 cents on the dollar).
Posted by: meander | August 25, 2009 1:59 AM