Agoracom Blog

US Government Stands To Turn Big Profit From $700 Billion Bailout.

Posted by AGORACOM at 4:06 AM on Thursday, September 25th, 2008

Given the track record of most government’s, it isn’t a surprise that many US taxpayers are up in arms over what they believe to be $700 Billion going down the drain to bailout Wall Street.

The good news, if you trust Warren Buffet, is that the US Government should be able to both stave off an economic Pearl Harbor AND turn a profit – at the expense of Wall Stree – for tax payers in the process.  Here is the excerpt from his interview with CNBC:

(The bad news is that Barry Ritholtz is betting $1,000,000 this will be a huge money loser – see below)

JOE: All the outrage we’re seeing in these comments from viewers, and obviously the senators are hearing from constituents. If we take your word for it, that the government could even break-even, or only lose 50 billion, that 700 billion dollar number is out there in the public, and people think that we’re spending that.

BUFFETT: Yeah, they think that, yeah.

JOE: It seems crucially important to get the point across that, in your view, we could, the government could actually end up making money and saving the taxpayer from much worse, a much worse outcome if we didn’t do this.

BUFFETT: The government is getting 700 billion worth of assets, assuming they spend the 700 billion, they’re getting 700 billion of assets at what I regard as attractive prices. And they’ve got the staying power to hold those things. If I could get 700 billion, if I could borrow 700 billion on the government’s terms and buy these assets I’d be doing it myself. But unfortunately I’m tapped out. (Laughs.)…

…. (earlier in the interview) And there’s no one that can leverage up except the United States government.  And what they’re talking about is leveraging up to the tune of 700 billion, to in effect, offset the deleveraging that’s going on through all the financial institutions.  And I might add, if they do it right, and I think they will do it reasonably right, they won’t do it perfectly right,  I think they’ll make a lot of money.

The US government is in a position to actually do something right and turn a profit?  If they can pull it off, you can’t say it doesn’t have a flair for the dramatic.

UPDATE: Andy Kessler in the Wall Street Journal says the payoff could be in the trillions:

“My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker,
no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars
and maybe as much as $2.2 trillion — yes, with a “t” — for the United States Treasury…

UPDATE 2: Barry Ritholtz, a colleague and Wall Street super-brain that has called this fiasco pretty dead on from the outset, is calling “bullshit” on the profit spin.  In fact, he is going PYMWYI (Put Your Money Where Your Mouth Is) by issuing the following $1,000,000 challenge:

“I have a 10 year bet for those folks now pushing the “Trust me, we will make it all back
on this one trade” spin. If you who think the Paulson plan is a money maker, a cash winner,`and a net after-fees taxpayer surplus creator, put your money where your mouth is. I`bet you one million dollars, to the charity of the winner’s choice, that the current plan is a ginormous money loser.”


2 Responses to “US Government Stands To Turn Big Profit From $700 Billion Bailout.”

  1. Ulrich Werneburg says:

    Hi George:

    I agree with you that the proposed bailout will be a money loser. However, in principle, I have to applaud Warren Buffett for his gumption with his $5B “investment” in Goldman Sachs. Really, this is how the whole bailout should be financed – through private means, not the government printing money and ultimately saddling the tax payer with either direct taxes or the “hidden” tax of inflation. Private enterprise created the mess (of course with collusion from government and the Fed) and it should be cleaned up by them. Unfortunately, they are all running for cover, with the notable exception of Warren Buffett. I guess the mess is just too big for them. Very sad.

    Ulrich Werneburg

  2. […] called this banking fiasco pretty dead on from the outset, is calling “bullshit” on the bailout profit spin now floating around.  In fact, he is going PYMWYMI (Put Your Money Where Your Mouth Is) by issuing […]