The New York Times is reporting about early indications that the US government is turning a profit on the 2008 financial system bailout. Apparently, the government is $4 billion ahead in profit, with a lot of money still outstanding and final returns still to be determined.
Aside from being premature, there is also some talk of the government having paid too much, and taxpayers having gotten too little:
A Congressional oversight panel concluded in February that the Treasury paid an average of 34 percent more than the estimated fair value of the assets it received.
Of course, many finance experts suggest that the comparison is academic at best, because there is no way to know what might have become of the banks or the financial system as a whole had the government not acted…
A more direct comparison of profits can be made with the investment performance of other governments that poured money into ailing banks last fall.
The Swiss government, for example, said last week that it had pulled in a handsome profit for taxpayers on a $5.6 billion bailout it gave to UBS, the troubled Swiss bank, at the height of the financial crisis in October. The government netted $1 billion on its investment, a gain equal to a 32 percent annual return.
Yes, the Republican-led US government believes in markets, but was it only when it ran against government interests? By overpaying for the bailouts, the government assumed a lot of risk for apparently more limited profit. There was no reason for governments not to pay cut-rate prices for troubled assets. After all, if markets transmit value well, then why not accept the prices afforded by the all-wise market mechanism? Indeed, if banks were going to fail, they could have bought entire banks at next-to-nothing prices and sat on them for a year while the markets panicked and subsided.
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