Govt. Bailout Profit?
A number of top government officials are implying that there is a possibility for the government to profit from the huge bailout. Do you really believe this?
Personally, I wonder if these same officials were saying how strong the economy was up to two weeks before everything hit the fan.
From a 2000 World Bank report entitled "Controlling the Fiscal Costs of Banking Crises," fiscal costs are systematically associated with a set of crisis management strategies. Our empirical findings reveal that unlimited deposit guarantees, open-ended liquidity support, repeated recapitalization, debtor bail-outs and regulatory forbearance, add significantly and sizeably to costs.
Do you recall the S&L crises of the 1980's? This crisis destroyed some 1,400 institutions and took another 1,300 banks with it between 1984-1991. Direct cost to the U.S. taxpayer? Some $180 billion, or three percent of annual economic output.
What about other bank bailouts: Norway's bank crisis of 1987 cost the government 8% of GDP, the Finnish bank crisis of 1991 cost 11% of GDP, and Japan's bank crisis from 1992 onwards cost a whopping 20% of GDP.
Some prior posts on the government bailout: