Comments on: Will the government benefit from takeovers when the market turns around?

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

jacobw — Wed, 17 Sep 2008 09:18:13 -0800

Do U.S. government takeovers of financial corporations mean the possibility of substantial profits for the government when the markets turn around?

By: mullacc

mullacc — Wed, 17 Sep 2008 10:11:03 -0800

Yes.

By: uandt

uandt — Wed, 17 Sep 2008 10:12:30 -0800

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.

By: a robot made out of meat

a robot made out of meat — Wed, 17 Sep 2008 10:14:16 -0800

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.

By: Class Goat

Class Goat — Wed, 17 Sep 2008 10:23:32 -0800

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.

By: ecmendenhall

ecmendenhall — Wed, 17 Sep 2008 11:21:42 -0800

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.

By: wangarific

wangarific — Wed, 17 Sep 2008 11:26:18 -0800

I think in these cases the government is just hoping to break even and not have a total financial collapse. :)

By: MattD

MattD — Wed, 17 Sep 2008 12:33:58 -0800

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.