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My investing and writing are primarily focussed on macro areas such as currencies, commodities, global investing, and geopolitics. I also closely monitor technology. I generally have a medium to longer-term investment horizon. I encourage you to review the track record of my published articles... More
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  • Today's Hooey: Claiming Bank Bailouts Are "Profitable" for Taxpayers 1 comment
    Jul 14, 2010 8:45 PM | about stocks: FNMA, FMCC, GS, KBE, SKF, AIG, FAZ, FAS, XLF, RKH

    CNBC, Reuters, and other media outlets trumpeted Keefe, Bruyette & Woods claim that bank bailouts are profitable for the U.S. government (and hence the U.S. taxpayer).

    If it weren't for the report's intellectual dishonesty this news would have made for a nice political headline and taxpayer feel good story.

    The glaring problem with Keefe's Mr. Fred Cannon's "profitable" conclusion is that he arrived at it only by ignoring all the other government bailouts during the financial crisis.

    For example, we have the estimated $1 trillion dollar bailout of Fannie Mae and Freddie Mac for which the U.S. taxpayer is directly on the hook. We also have $1.25 trillion in mortgage backed securities purchased by the Federal Reserve. You can check out all the different government bailouts in their line-item by line-item glory here.

    The total government bailout tally comes to a staggering $4.6 trillion, making the relatively puny $200 billion slice analyzed in isolation by Mr. Cannon comical.

    Why do these other bailouts matter? The reason is the banks directly or indirectly benefitted from them, and these benefits helped them pay back their TARP funds.

    For example, AIG was bailed out to the tune of $182.3 billion. The reason AIG needed a bailout is because the company owed a lot money to other firms and didn't have the money to pay them. To whom did AIG owe money? One party was none other than TARP borrower Goldman Sachs.

    It's unclear whether Goldman and the other TARP banks that have paid back the government would have been able to do so had the government not bailed out AIG, Fannie and Freddie, bought over $1 trillion in mortgage securities, etc. However, what can be said is that all these other bailouts certainly helped banks like Goldman.

    The bottom line: making the claim that the bank bailouts are "profitable" for taxpayers, as Mr. Cannon and Keefe do, is at best an extremely incomplete analysis and at worst deceptive. 

    Disclosure: No positions
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  • Bron
    , contributor
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    Great article and quite correct. Never have so many given so much for so few. The funnel is upside down. The damage will be long lasting.
    14 Jul 2010, 09:36 PM Reply Like
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