The FT takes a look at how governments have made out after investing in banks to keep them from failing. The U.S. has the best returns:
In contrast to Switzerland, which sold its 9 per cent UBS stake for a SFr1.2bn ($1.1bn) gain last week, the world’s other large economies – except the US – are sitting on combined losses of $10.8bn relating to their holdings in the equity of listed banks they bailed out over the past 12 months.
The US government, by contrast, is sitting on a paper profit of almost $11bn on its 34 per cent shareholding in Citigroup, its only direct stake in a large financial institution.
The key word there is, of course, "paper" profit. But given the fact that the 'let the banks earn their way out of insolvency' strategy has been working thus far (even if it is risky and offers pernicious incentives to the overall financial sector), those paper profits may eventually be realized. More clarity on what will be done about toxic assets would be reassuring on this point.
Update: Commenter SR points to a smart Washington Monthly article on successful bailouts of the past; while it doesn't really analogize well to the financial sector bailouts, it does make a lot of sense in the context of U.S. investments in General Motors and Chrysler.
-- Tim Fernholz
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