Bailout economics

By Felix Salmon
November 17, 2010
Warren Buffett contributes a thankyou-for-the-bailout op-ed to the NYT to run alongside the paper's reasonably comprehensive accounting of which bailout monies have been paid back, which might be, and which won't be.

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It’s all about the bailouts today, as Warren Buffett contributes a thank-you-for-the-bailout op-ed to the NYT to run alongside the paper’s reasonably comprehensive accounting of which bailout monies have been paid back, which might be, and which won’t be. (Think banks, AIG, and Frannie respectively.)

The next big tranche of bailout repayment funds, of course, is going to arrive tomorrow, with the upsized GM IPO. The size of the stake that Treasury’s selling has been growing impressively, and at this point it looks as though taxpayers are going to end up owning just 33% of GM, down from 61% right now.

The more shares that the government sells in the low $30s, of course, the harder it’s going to be for Treasury to realize an average price of $44 per share for its stake by the time its last share of stock has been sold. That’s the point at which the government breaks even on the deal. But I’m glad that Treasury isn’t letting such considerations stop it—holding on to stock just because it’s trading below some arbitrary 0% return figure is simply speculating in the stock market, and it’s not Treasury’s job to be a stock-market speculator.

Meanwhile, the Ireland bailout is already well under way, the protestations of Ireland’s PM that Ireland isn’t asking for one notwithstanding: we’re still in the middle of the bailout era, and we’re not even close to a point where bailouts are a thing of the past. Portugal is next, Greece is inevitable at some point, and various U.S. states might well end up getting bailed out too, sooner or later.

We haven’t even put an end to bailouts of the private sector, since any bailout, even of a sovereign, is ultimately a bailout of its private-sector creditors.

All of which means that sovereign debt is going to continue to go up rather than down: at heart, bailouts are a way of moving indebtedness from the bailed-out entity to the government doing the bailing out. With yet another debt reduction task force reporting today, it might be time to start asking how and whether crisis-related bailouts can ever be accounted for in long-term sovereign debt planning.


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Financial bailouts are always and everywhere an indication of irresponsible government. Buffett is the US’ greatest pimp, doing stand-up for the gov’t all the time money gov’t money is pouring into his pants through his personal mini-bailout of Goldman. What a joke!

Posted by Woltmann | Report as abusive

I don’t understand why the Times projects Fannie and Freddie to cost $55bn, while the WSJ has the cost at $134bn already and possibly as high as $680bn. Who is right? ss/17bailout.html?nl=business&emc=dlbka2 2 052748703805704575594300330039336.html

Posted by Mr.Do | Report as abusive

Pretty Good for Government Work? Someone he is cozy with in Government or banks asked him to give a thumbs up? And saddest of all he gives a thumbs up to BUSH! Un fricking believable!

And he knows not how it happened ( Banker magic? Goldman really is doing God’s work afterall?) but all he knows the results were an evasion of economic disaster.

It sounded like a ploy rather then a plug and all the crap about the economy being stable ~hallelujah is as bad as bush’s grandstanding declaration that the war in Iraq was over.

Don’t we all feel so good now that he has written that?

Posted by hsvkitty | Report as abusive

Because the NY times one is a Government estimate of loss over a decade and no doubt has been softened by the scrambling to ensure that the mess up mortgage scandal is too complicated to pursue and won’t be held up in courts and thus slow down the market.

The WSJ is using info from Standard & Poor’s who have far less faith that the housing market won’t double dip and need more injections in spite of the scrambling above.

“…conservatorship. The Treasury has promised to inject unlimited sums through 2012 and nearly $300 billion after that in order to maintain a positive net worth and to avoid triggering liquidation.”

The injections make another bloated cow even more bloated, but that’s ok the taxpayers are good for it!

Posted by hsvkitty | Report as abusive

Salmon is using sophistry: the debt is transferred from the private sector to the taxpayer. In the case of the mortgage bailout, it is transferred from the criminal to the victim.

Posted by stevadore33 | Report as abusive

Mr.Do, the difference between the NYT and WSJ is the difference between net and gross. The govt has put $134B into Frannie, but has received a lot of that back in dividends and interest.

Posted by FelixSalmon | Report as abusive

Maybe i am misunderstanding this bit:

“bailout monies have been paid back, which might be, and which won’t be. (Think banks, AIG, and Frannie respectively.)”

It read to me like you were claiming that the banks, AIG and Frannie were going to be the ones causing the greatest losses to the tax payer, which is clearly untrue. Assuming worst case scenarios it is Frannie, AIG, Housing and Automakers. Even under the worst case scenarios the Treasury isn’t going to lose money on Banks.

As for the dividends into Freddie, I am sure they were ***relatively*** small, like around 8 billion with Fannie doing twice that.

Posted by Danny_Black | Report as abusive