Sunday, September 28, 2008

Lessons from 124 banking blow ups: U.S. probably won't make money on the bailout

I've previously mentioned that the bailout is probably necessary to get credit flowing to U.S. firms again, which would avert numerous job losses. Additionally, Warren Buffett, an eminence grises of the U.S. business scene has contended that the Treasury stands to make money on the purchased assets in the long run if they play it right.

However, the DealBook blog on NY Times cites an International Monetary Fund report done by Merrill Lynch that analyzes 124 previous banking failures. They found that the average fiscal cost was 13.3% of a nation's gross domestic product - and that's net of any recoveries down the road.

In other words, the U.S. Treasury isn't likely to profit off the bailout program. That said, because the U.S. crisis is unfolding much faster than Japan's, for example, the U.S. is also responding much earlier than some other crises.

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