AIG Bailout Likely To Cost Taxpayers Nothing

It looks like all of the money that the federal government used to bail out AIG will be repaid to the Federal Government, and that the Federal Government may very well make a profit on the deal when it ultimately sells its 80% share of the company. Since causing AIG to honor its credit default swaps shored up lots of other financial institutions, the AIG was really a bailout of the entire credit default swap industry.

This isn't the only case where this is so. The TARP bailout has also proved to be far cheaper for the taxpayer than originally anticipated. Another basically cost free bailout was the step officials took to guarantee privately insured money market funds, which prevented a run on those funds and cost the taxpayer nothing. And, Federal Reserve involvement in the commercial paper market (short term loans to big businesses) when rates reached panic levels for a short time period, also appears to have been effective and taxpayer money free.

The FDIC's interventions appear to have protected depositors far beyond the level that the insurance limits on deposits require, while using overwhelmingly funds already set aside for the purpose, with excesses paid from an on the books already fee charged to insured banks.

The GM bailout is increasingly looking like it secured a great many saved jobs for a very modest net taxpayer cost. The jury is still out on the Chrysler bailout, which looks to have been one of the more expensive bailouts, but it also saved a lot of jobs that now appear to be sustainable (i.e. the jobs saved will long outlast the bailout). Both of these bailouts greatly mitigated immense Pension Benefit Guarantee Corporation payouts that might otherwise have been necessary from public funds.

Less publicized, but still having a potential for great taxpayer losses, are the bailouts of Fannie Mae and Freddie Mac and the Federal Reserve participation in buying toxic assets. Still, it is entirely possible that these will produce losses far smaller than anticipated at the time. And, since these government chartered companies have funded an immense share of the post-financial crisis mortgage market, there is good reason to believe that federally backing up these institutions has prevented what might otherwise been a much worse collapse of the construction and real estate markets.

While the bailouts were immensely unpopular, they are looking like far better policy in twenty-twenty hindsight than they did in advance.

In contrast, well meant demand stimulus measures like Cars For Clunkers and the Homebuyer's Tax Credit, which were very expensive relatively to the results achieved. These programs appear to have produced few economic benefits, and instead merely shifted the timing of car purchase and home purchase transactions by less than a year in each case.