The Big Bad Bailout

In July 2011, Fortune published an article by Alan Sloan, a senior editor titled: "Surprise! The big bad bailout is paying off."  It was a surprise not only for readers, but for Sloan himself. As he says:

When our boss assigned us to find out how much the financial rescue cost, we expected to find a monumental loss, because Fannie Mae and Freddie Mac seemed like a bottomless pit. Instead, we discovered that bailout profit payments from the Fed -- which we hadn't previously thought of as a profit center -- are virtually certain to exceed taxpayer losses on Fannie and Freddie. We were surprised -- and pleased -- to discover taxpayers showing a profit on the bailout. We hope that you are too.

What followed, predictably, was a hailstorm of criticism. One of the criticisms, an article titled "Alan Sloan's Bad Math and Bad Analysis" was published by Fortune later that month. Sloan answered the criticism at the bottom of the article, and followed up with a more detailed analysis in an article "Surprise! We still think the big bad bailout is paying off."

Reading the whole thread, I like Sloan's analysis. He says:

I decided the only way to get useful numbers was to use cash: the government's bailout outlays, less the cash it's gotten (and is almost certain to get) from guarantee fees, selling securities it got in the process of bailing out borrowers and debt issuers, and -- the most controversial part -- the payments to the Treasury by the Federal Reserve of profits the Fed has made from its role in the bailout.

Doris and I were calculating the cash costs of the bailout to taxpayers. Repeat, cash. C-A-S-H. Not moral hazards. Not risk-adjusted dollars. We thought that it was obvious that we were measuring cash rather than using fancy metrics. We weren't including costs or benefits from the Fed bailout programs debasing the dollar or screwing prudent savers by keeping interest rates ultra low or possibly setting the stage for future inflation. 

We weren't including the job-creation benefits created by the cheaper dollar presumably reducing imports and increasing exports, or the benefits of not seeing every major U.S. financial institution fail, and of not having companies heavily dependent on short-term loans (which had dried up in the market panic) miss payrolls or go out of business. Who's got objective, reliable, challenge-proof numbers for these things? Not us, not anyone.