{"id":169523,"date":"2020-04-28T09:41:58","date_gmt":"2020-04-28T13:41:58","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=169523"},"modified":"2020-04-28T09:41:58","modified_gmt":"2020-04-28T13:41:58","slug":"coronavirus-bailouts-will-cost-taxpayers-hundreds-of-billions-of-dollars-unlike-past-corporate-rescues-that-actually-made-money-for-the-us-treasury","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/04\/coronavirus-bailouts-will-cost-taxpayers-hundreds-of-billions-of-dollars-unlike-past-corporate-rescues-that-actually-made-money-for-the-us-treasury\/","title":{"rendered":"Coronavirus bailouts will cost taxpayers hundreds of billions of dollars – unlike past corporate rescues that actually made money for the US Treasury"},"content":{"rendered":"
April 28, 2020<\/div>
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By Scott Newsome<\/a>, University of California, Santa Cruz<\/a><\/em><\/strong><\/p>\n

The U.S. government has now pledged almost US$3 trillion<\/a> to save the economy and Americans from the coronavirus recession.<\/p>\n

Most of that is aimed at individual Americans in the form of additional unemployment insurance<\/a> or the so-called economic impact checks<\/a>. About $1.2 trillion \u2013 and counting \u2013 represent bailouts for American companies, large and small.<\/p>\n

And more than 60% of that is in the form of grants or other financial assistance that will likely become grants \u2013 funds that will not be recovered by taxpayers. The Congressional Budget Office estimated on April 23 that the company-related coronavirus bailouts, excluding the fourth one just signed into law<\/a>, will ultimately cost more than $400 billion<\/a> over 10 years. Given that most of the latest bailout, worth $484 billion, will most likely end up becoming grants to small businesses as well, the price tag is bound to get a lot higher.<\/p>\n

It may not come as a surprise that taxpayers ultimately foot the bill when lawmakers spend their money to bail out a corporate industry \u2013 such as Wall Street during the Great Recession<\/a> \u2013 or the entire economy today. But this is actually the exception, not the rule.<\/p>\n

The truth is, as my research shows, the vast majority of business bailouts passed by Congress over the past half century have either broken even or generated a profit.<\/p>

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\"\"<\/a>Image by MotionStudios \/ Pixabay<\/em><\/p>\n

Profitable bailouts<\/h2>\n

As part of my ongoing research<\/a> on economic policymaking during recessions, I studied 10 corporate bailouts approved by Congress since 1969.<\/p>\n

I only looked at bailouts that involved direct assistance \u2013 in the forms of loans, guarantees, grants or capital injections \u2013 by Congress to a company or industry in financial distress. I excluded the Savings and Loan crisis<\/a> of the 1980s and 1990s because that was less of a bailout and more of an expensive regulatory wind-down. All of the figures below have been adjusted for inflation.<\/p>\n

I found that half of the bailouts made a clear profit for taxpayers.<\/p>\n

For example, Lockheed Martin ran into financial difficulties<\/a> in 1971 because the planes, helicopters and other military equipment it was making for the U.S. Department of Defense cost more than the Pentagon agreed to pay, which led to significant losses and fees. The defense contractor pinned its survival on making money off its state-of-the-art TriStar airliner<\/a> but struggled to secure enough financing to finish the project.<\/p>\n

Congress, concerned with the loss of at least 25,000 jobs if Lockheed went bankrupt, provided Lockheed with a lifeline in the form of loan guarantees. That is, it agreed to back a $1.62 billion private loan in exchange for a fee. Although the TriStar was a flop, it was enough to keep Lockheed solvent, and taxpayers earned $198 million.<\/p>\n

Similarly, automaker Chrysler found itself in financial peril<\/a> in late 1979 in part due to its slow reaction to market shifts brought about by the 1970s energy crisis. Consumers wanted more fuel efficient cars; Chrysler made too many gas guzzlers. Post-bailout studies<\/a> suggested the company was headed toward insolvency<\/a>.<\/p>\n

The potential loss of 250,000 jobs and the adverse impact on automotive dealers and suppliers spurred Congress to offer Chrysler up to $4.98 billion in loan guarantees. As a precondition for this help, Chrysler, in addition to paying fees on the loans, granted the U.S. government rights to buy 14.4 million company shares at a set price. This arrangement provided taxpayers with $1.03 billion \u2013 on $4 billion worth of loans \u2013 when the government sold the shares<\/a> in 1983.<\/p>\n

And more recently, Congress pledged trillions of dollars<\/a> saving the financial system in 2008. For my purposes, I split the aid to companies into four distinct bailouts, three of which made large profits.<\/p>\n

One in particular, the much-derided<\/a> Troubled Asset Relief Program<\/a>, was a $854 billion bailout for financial companies. Ultimately, $382 billion was dispersed to Wall Street firms like Citigroup, JPMorgan and AIG in exchange for preferred stock and other compensation. Taxpayers earned $32.5 billion.<\/p>\n

A separate bailout<\/a> to Fannie Mae and Freddie Mac was even more lucrative<\/a>. The U.S. government received preferred stock for the $234 billion invested in the two housing giants. Taxpayers got its money back as well as $123 billion in profits.<\/p>\n

There were also two bailouts \u2013 for the Farm Credit System<\/a> in 1987 and the Steel and Oil and Gas industries<\/a> in 1999 that likely made money, but I was unable to find all the details necessary to do the full analysis. At a minimum, my review suggests both broken even.<\/p>\n