Will the government benefit from takeovers when the market turns around?

September 17, 2008 9:18 AM

Do U.S. government takeovers of financial corporations mean the possibility of substantial profits for the government when the markets turn around?
posted by jacobw to law & government (7 comments total)

Yes.
posted by mullacc at 10:11 AM on September 17, 2008

Yes.

The US crisis is quite similar to the one in Sweden and Norway in the early nineties.

The government did get the money back from the banks that were nationalized. Here a Swedish gov page on the subject.
posted by uandt at 10:12 AM on September 17, 2008

On NPR this morning they said 'yes.' It is within the realm of possibility that AIG will get its affairs in order, pay back the $85B loan, and return to profitability in which case the fed's 80% share will be a valuable asset.

They considered this to be very unlikely, however.
posted by a robot made out of meat at 10:14 AM on September 17, 2008

The US made a big profit on the Chrysler bail-out. On the other hand, the US took a bath on the S&L bailout. So it's possible, but hardly guaranteed.
posted by Class Goat at 10:23 AM on September 17, 2008

Tyler Cowen and Felix Salmon say yes, at least for AIG, and over a limited time horizon, since they're paying back the Fed at a totally crazy rate of Libor + 850.
posted by ecmendenhall at 11:21 AM on September 17, 2008

I think in these cases the government is just hoping to break even and not have a total financial collapse. :)
posted by wangarific at 11:26 AM on September 17, 2008

It's entirely possible for the government to make $50 billion or more on the AIG deal. Indeed, at this very moment, the stock market values the government's 80% stake in AIG at around $24 billion, although that couldn't be easily realized. If it performs, the AIG loan may generate $10 billion or more in interest margin (interest paid by AIG less the government's cost of funds).

The Fannie Mae / Freddie Mac bailouts are a lot more sketchy, in part because their underlying purpose wasn't economic, but political.
posted by MattD at 12:33 PM on September 17, 2008