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So is the argument that the bailout was zero-sum, but the government came out ahead(and the banks lost), or was it value producing to bail the banks out?
by oh_sigh 7y ago
So is the argument that the bailout was zero-sum, but the government came out ahead(and the banks lost), or was it value producing to bail the banks out?
- wmil 7y agoI think the argument is that the government bailout was much simpler than having each bank go through a bankruptcy negotiations with their various creditors. Many of the debtees probably came out behind what they could have negotiated, but there was a net gain by avoiding all of that work to negotiate.
- rayiner 7y agoThe theory of bailouts is that they are value-destruction-avoiding, like bankruptcy restructuring. The banks lost a lot of money on the mortgage backed securities, but lost much less than they would have had those assets been sold at fire sale. The government came out slightly ahead; it got a part of what value wasn’t destroyed in a catastrophic unwinding of the banks.