11 ms·

On the fallacy that the U.S. taxpayers made money on the bailouts, note that in finance deals get judged by how much money they make given the risk that had to

On the fallacy that the U.S. taxpayers made money on the bailouts, note that in finance deals get judged by how much money they make given the risk that had to be assumed to make it. In the case of the bailouts: $614 billion was disbursed $667 billion was recouped For a difference of $53.1 billion, i.e. 8.6%. [1] 8.6% is insultingly low compensation to use taxpayer money that, by the way, could have been spent on more beneficial investments (infrastructure, education, healthcare) to bail out private companies who were the victims of their own greed and poor governance. FWIW the average junk bond yield in 2009 was above 20% [2]. [1] http://projects.propublica.org/bailout/ http://projects.propublica.org/bailout/ [2] http://money.cnn.com/2011/02/18/markets/bondcenter/junk_bonds/ http://money.cnn.com/2011/02/18/markets/bondcenter/junk_bond...

jimktrains2 12y ago
> On the fallacy that the U.S. taxpayers made money on the bailouts > 8.6% is insultingly low compensation to use taxpayer money So, money was made? > could have been spent on more beneficial investments (infrastructure, education, healthcare) to bail out private companies who were the victims of their own greed and poor governance. Why couldn't it still be used on infrastructure, education, or healthcare?
- ThomPete 12y ago
  Money were made but not enough compared to the risk involved with lending them out. Thats the point.
  - tomp 12y ago
    Bot possibly, even probably, enough compared to the risk involved with not lending them out (i.e. another depression).
    - ThomPete 12y ago
      Thats irrelevant to how you calculate what the return should be compared to the risk involved.
      - rayiner 12y ago
        Why? Loss of tax revenue to the government resulting from a depression is certainly money that the government needs to factor into the calculation.
        ThomPete 12y ago
        Sure but so is the danger of going bankrupt for the banks or being completely nationalized. Also the country would survive a depression if it really came down to that, the bank wouldn't survive a bankruptcy. So the playing field are fairly even when it comes to having leverage.
        jbooth 12y ago
        Because it's embracing too big to fail. Unless we want 'too big to fail' to be the rule going forward, and unfortunately it seems that it will be, we should reject the idea that the rest of us are the beneficiary of having to bail out the banks.
        rayiner 12y ago
        Whether we embraced it or not, it was part of the calculus. So was the fact that we'd need continued investment into the economy to work our way out of the financial collapse. That meant that options like nationalizing banks, which might drive investment overseas in the future, could have a direct negative economic impact that needed to be considered.
        jbooth 12y ago
        Sure, I agree that we had no choice at that point but to bail the banks out. But when reviewing the decision afterwards, I think we need to reject lines of argument that the government did really great on the deal so it's not that bad what happened. We don't want it to happen again, we don't want to be in a no-other-options situation.
    - tormeh 12y ago
      You assume there's no other way to avoid a depression. The banks can be bypassed, even if that would be a bit unconventional.
  - snowwrestler 12y ago
    The parent asserted that, but did not actually quantify the risk in any way. I could just as easily say that there was no risk at all since the government was obviously not going to allow those institutions to fail.
    - ThomPete 12y ago
      The claim that I answered where "Money were made" it didn't quantify it either so I fail to see the point.
    - marcusgarvey 12y ago
      One way to infer: what's the risk of lending to a company that's facing an existential crisis, that's in such dire straits that no one else would lend to it?
  - smileysteve 12y ago
    This ignores the risk of not lending them out, which is difficult to quantify, but is considered significantly greater than 0.
    - ThomPete 12y ago
      Not sure I understand. The difficulty of lending them out should just increases the risk of lending them out and therefore the need to recoup that risk by a proper margin. Thats not what happened when the banks regardless of contracts still gave out large bonuses many times more than the return to the taxpayers. That simply doesn't add up.
      - smileysteve 12y ago
        The risk of not lending the banks out is a depression where the currency / global economy may have lost more value. Example: The gov only made 8.5%, but if the US costs have increased 16% over the same period (because of a depression), the overall return is more like 24.5%, ignoring the additional costs of a depression.
- marcusgarvey 12y ago
  "Made."
- bmelton 12y ago
  > So, money was made? I don't know the details of when the money was disbursed and when the money was recuperated, but if it were disbursed in 2008, and recouped in, say, 2014, there was a 10% rate of inflation, which devalues the currency to the point that no, money was not made. If 2013, the rate of inflation was 8.2%, which leaves a .4% "profit", assuming no other costs. If 2012, the rate of inflation was 6.6%, leaving a 2% profit, etc. Of course, this assumes the money wouldn't have performed in any way just sitting in the government coffers, and I honestly don't know enough to even begin to evaluate whether it would have.
  - yummyfajitas 12y ago
    Inflation was 1.5-1.6%. http://research.stlouisfed.org/fred2/data/CPIAUCSL.txt http://research.stlouisfed.org/fred2/data/CPIAUCSL.txt edit: computation done by comparing Jan 1 2012 to Jan 1 2013, etc.
    - philh 12y ago
      Between which dates? If I'm reading this correctly, Jan 08 to Jan 14 is 212 to 234, which is about 10%. (This also matches the statistic that I happen to have memorized of 8% inflation between 2010 and 2014.)
cm2187 12y ago
If the state got its money back, it means that money wasn't paid away in bonuses.
- justincormack 12y ago
  No, the state might have got a better return without bonuses (although I cant remember how the deal was structured). Mind you you could argue that getting a sweet deal like that deserves a bonus... It is certainly a better deal than the Irish bailout, which will never be paid back and amounted to 100% of GDP.
danielweber 12y ago
The risk was incredibly low. The banks were rather profitable, but they had cash flow issues from deleveraging. And credit vanished in 2008. For the government's balance sheet, getting paid back 8.6% is a lot more reliable than your gut instinct of infrastructure or education or (especially!) health care.
- deleted 12y ago
  [deleted]
- jbooth 12y ago
  If the risk was so low, why couldn't a private entity bail out the banks? Would have been a gangbusters investment, right? 8.6% is a good return for that risk?
  - toyg 12y ago
    How many entities do you know with almost 700bn in the bank ? The point of the bailout was to throw all the might of the State behind the sector, in a "ye shall not pass" stance that basically stated that either we cut these banks some slack or our current civilization would burn in flames. It worked, because people got the message and business eventually went back to normal. We can disagree on whether it was "good enough" (I thought the opportunity for deeper changes was ripe, but I'm just an old-school eurosocialist myself), but I don't think any other entity could have done it except Nation-States.
    - woah 12y ago
      Our current civilization would burn in flames? What a load of poppycock.
    - atmosx 12y ago
      > or our current civilization would burn in flames. Wait a minute, just a minute. The way I see it, the US government didn't disarm a nuclear bomb, it just saved Goldman Sachs (and it's creditors AIG) and let Lehman Brothers die. Smart choice by Henry Paulson, I'd expect no less by a former senior GS manager. It used tax-payer money and I'd be angry if I were an American. I'm angry at the Greek government who did the same thing (among many other things), but then again. I live in Greece, I get a choice (More than 30 parties run in the elections last time I checked...). In the US I get the feeling that you can vote Democrats or Republicans. Largely disputable policies like this, are never going to change.
IndianAstronaut 12y ago
$614billion is almost 30 times NASAs annual budget. We could be on our way to Mars right now.

jimktrains2 12y ago

> On the fallacy that the U.S. taxpayers made money on the bailouts > 8.6% is insultingly low compensation to use taxpayer money So, money was made? > could have been spent on more beneficial investments (infrastructure, education, healthcare) to bail out private companies who were the victims of their own greed and poor governance. Why couldn't it still be used on infrastructure, education, or healthcare?

ThomPete 12y ago
Money were made but not enough compared to the risk involved with lending them out. Thats the point.
- tomp 12y ago
  Bot possibly, even probably, enough compared to the risk involved with not lending them out (i.e. another depression).
  - ThomPete 12y ago
    Thats irrelevant to how you calculate what the return should be compared to the risk involved.
    - rayiner 12y ago
      Why? Loss of tax revenue to the government resulting from a depression is certainly money that the government needs to factor into the calculation.
      - ThomPete 12y ago
        Sure but so is the danger of going bankrupt for the banks or being completely nationalized. Also the country would survive a depression if it really came down to that, the bank wouldn't survive a bankruptcy. So the playing field are fairly even when it comes to having leverage.
      - jbooth 12y ago
        Because it's embracing too big to fail. Unless we want 'too big to fail' to be the rule going forward, and unfortunately it seems that it will be, we should reject the idea that the rest of us are the beneficiary of having to bail out the banks.
        rayiner 12y ago
        Whether we embraced it or not, it was part of the calculus. So was the fact that we'd need continued investment into the economy to work our way out of the financial collapse. That meant that options like nationalizing banks, which might drive investment overseas in the future, could have a direct negative economic impact that needed to be considered.
        jbooth 12y ago
        Sure, I agree that we had no choice at that point but to bail the banks out. But when reviewing the decision afterwards, I think we need to reject lines of argument that the government did really great on the deal so it's not that bad what happened. We don't want it to happen again, we don't want to be in a no-other-options situation.
  - tormeh 12y ago
    You assume there's no other way to avoid a depression. The banks can be bypassed, even if that would be a bit unconventional.
- snowwrestler 12y ago
  The parent asserted that, but did not actually quantify the risk in any way. I could just as easily say that there was no risk at all since the government was obviously not going to allow those institutions to fail.
  - ThomPete 12y ago
    The claim that I answered where "Money were made" it didn't quantify it either so I fail to see the point.
  - marcusgarvey 12y ago
    One way to infer: what's the risk of lending to a company that's facing an existential crisis, that's in such dire straits that no one else would lend to it?
- smileysteve 12y ago
  This ignores the risk of not lending them out, which is difficult to quantify, but is considered significantly greater than 0.
  - ThomPete 12y ago
    Not sure I understand. The difficulty of lending them out should just increases the risk of lending them out and therefore the need to recoup that risk by a proper margin. Thats not what happened when the banks regardless of contracts still gave out large bonuses many times more than the return to the taxpayers. That simply doesn't add up.
    - smileysteve 12y ago
      The risk of not lending the banks out is a depression where the currency / global economy may have lost more value. Example: The gov only made 8.5%, but if the US costs have increased 16% over the same period (because of a depression), the overall return is more like 24.5%, ignoring the additional costs of a depression.
marcusgarvey 12y ago
"Made."
bmelton 12y ago
> So, money was made? I don't know the details of when the money was disbursed and when the money was recuperated, but if it were disbursed in 2008, and recouped in, say, 2014, there was a 10% rate of inflation, which devalues the currency to the point that no, money was not made. If 2013, the rate of inflation was 8.2%, which leaves a .4% "profit", assuming no other costs. If 2012, the rate of inflation was 6.6%, leaving a 2% profit, etc. Of course, this assumes the money wouldn't have performed in any way just sitting in the government coffers, and I honestly don't know enough to even begin to evaluate whether it would have.
- yummyfajitas 12y ago
  Inflation was 1.5-1.6%. http://research.stlouisfed.org/fred2/data/CPIAUCSL.txt http://research.stlouisfed.org/fred2/data/CPIAUCSL.txt edit: computation done by comparing Jan 1 2012 to Jan 1 2013, etc.
  - philh 12y ago
    Between which dates? If I'm reading this correctly, Jan 08 to Jan 14 is 212 to 234, which is about 10%. (This also matches the statistic that I happen to have memorized of 8% inflation between 2010 and 2014.)

cm2187 12y ago

If the state got its money back, it means that money wasn't paid away in bonuses.

justincormack 12y ago
No, the state might have got a better return without bonuses (although I cant remember how the deal was structured). Mind you you could argue that getting a sweet deal like that deserves a bonus... It is certainly a better deal than the Irish bailout, which will never be paid back and amounted to 100% of GDP.

danielweber 12y ago

The risk was incredibly low. The banks were rather profitable, but they had cash flow issues from deleveraging. And credit vanished in 2008. For the government's balance sheet, getting paid back 8.6% is a lot more reliable than your gut instinct of infrastructure or education or (especially!) health care.

deleted 12y ago
[deleted]
jbooth 12y ago
If the risk was so low, why couldn't a private entity bail out the banks? Would have been a gangbusters investment, right? 8.6% is a good return for that risk?
- toyg 12y ago
  How many entities do you know with almost 700bn in the bank ? The point of the bailout was to throw all the might of the State behind the sector, in a "ye shall not pass" stance that basically stated that either we cut these banks some slack or our current civilization would burn in flames. It worked, because people got the message and business eventually went back to normal. We can disagree on whether it was "good enough" (I thought the opportunity for deeper changes was ripe, but I'm just an old-school eurosocialist myself), but I don't think any other entity could have done it except Nation-States.
  - woah 12y ago
    Our current civilization would burn in flames? What a load of poppycock.
  - atmosx 12y ago
    > or our current civilization would burn in flames. Wait a minute, just a minute. The way I see it, the US government didn't disarm a nuclear bomb, it just saved Goldman Sachs (and it's creditors AIG) and let Lehman Brothers die. Smart choice by Henry Paulson, I'd expect no less by a former senior GS manager. It used tax-payer money and I'd be angry if I were an American. I'm angry at the Greek government who did the same thing (among many other things), but then again. I live in Greece, I get a choice (More than 30 parties run in the elections last time I checked...). In the US I get the feeling that you can vote Democrats or Republicans. Largely disputable policies like this, are never going to change.

IndianAstronaut 12y ago

$614billion is almost 30 times NASAs annual budget. We could be on our way to Mars right now.