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What Are the Chances the Government Will Profit on the Bank Bailouts?

Name: Peter D.
City & State: Miami, Fla.

Question: It seems that almost all of the news we hear about the government's bailout of the banks is negative, as if the American taxpayer will never see another dime of the bailout money again.

But isn't it true that when the banks finally get back on their feet and start turning a profit that not only will we get our money back, but that there is a real potential for the government to actually make a profit? Perhaps even enough money to pay down the national debt?

Just what are the chances of the government getting its money back and making a profit to boot?

Paul Solman: 42.7 percent. Wait, I take that back: 9.32 percent. No, sorry, that's a typo: 93.2 percent.

Look Peter, I was with you all the way through most of your second paragraph. Absolutely, there's a chance taxpayers will win on the bank bailouts, in a number of ways, most obviously, if the preferred shares we've gotten in banks rise substantially above the price we "paid," and we sell them at a profit. The first rule of investing is "buy low, sell high." No one can deny that by historical standards, the government bought pretty low in this case. (One can of course deny that it was a good deal: "historically low" does not preclude LOWER.)

As to paying off the national debt: uh, no. That debt has topped $10 trillion dollars of late. There is no plausible scenario, short of hyperinflation (in which dollars become relatively worthless), by which the profits on taxpayers bank investments will yield that kind of money.

-- Posted May 22, 2009 | Comments ( ) | Permalink