Bailout Makes Government Biggest, Not Best, Distressed-Debt Investor Ever

Posted on Friday, December 17, 2010

As the U.S. government poured billions of dollars into companies during the financial crisis, it earned an unusual honor: biggest distressed-debt investor in history, the Wall Street Journalnotes.
With about $388 billion invested in troubled companies over the last two years, the government became a so-called vulture investor, buying into entities that others deemed too risky to touch. But according to investors polled by the Wall Street Journal, the government could have done better.
The Troubled Asset Relief Program will cost taxpayers $25 billion, according to the most recent estimate by the Congressional Budget Office. That's far less than the $700 billion that the government pledged. But it's still not a profit: Even as individual investments do well, the total program is not expected to earn money.
Compared to private investors, some of the government's ventures have fared well. As of the beginning of this month, the government has earned 27 percent on its $45 billion investment in Citigroup, the WSJ notes, adding that an index of distressed-debt investors returned 28 percent over the same period.
Profits, of course, weren't the government's top priority when it pledged billions to companies with the aim of averting an even worse crisis than the one that transpired. (Two of the program's stated goals were to spur lending and save jobs.)
Companies that received the taxpayer money have done quite well for themselves. Thanks in large part to TARP and to cheap funding from the Federal Reserve, Wall Street banks are on track to finish their best two years ever. With billions from the government, the five biggest investment banks have seen their revenue reach $93.7 billion so far this year, Bloomberg reported.
The Huffington Post | William Alden

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