Will Taxpayers See A Return On Their Bailout Money?

Is it possible taxpayers could actually profit from the massive $700 bailout of financial companies? Neil Kashkari, director of the U.S. Treasury’s Office of Financial Stability thinks so, according to CNN Money. According to Kashkari, the U.S. Treasury is investing in “very high-quality institutions of all sizes.” Please excuse my skepticism.

Past Performance Is No Guarantee Of Future Results But…

Obviously, the failings and obvious short-comings of past administrations doesn’t necessarily mean the present financial rescue plan won’t bear fruit, but let’s be realistic here. At any other point in history, have the government’s knee-jerk reactions, corporate bailouts, and market interferences ever turned out the way they were supposed to? I can’t recall such an occasion.

Ways The Public Could Profit

That said, there are many ways the public could and will profit from the bailout. First and foremost, everybody will benefit if the bailout does its job and stabilizes the financial markets. The key word there is “if,” however. If it turns out the bailout is either ineffective or unneeded, it’s hard to imagine a scenario where it would profit the American people. Second, even if the bailout doesn’t stabilize the financial markets, it may at least demonstrate the U.S. government’s determination to steer the economy back to growth. This could have a placating effect on equities, perhaps keeping them from dropping as far as they would have otherwise. Or, such action may increase the attractiveness of the dollar relative to other currencies, causing it to strengthen. Of course, this sort of benefit is tenuous at best and difficult to measure, but it is there. Third, the most direct way for the public to benefit would be for the securities purchased by the treasury on their behalf to appreciate in value. This will very likely happen over the course of the next few decades, but likely not months and maybe not even years. And even then, there’s a good possibility many of these companies won’t survive, causing a permanent loss.

Overall, the odds aren’t looking good. What do you think?