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Top Treasury Official Predicts Government to Profit from Bailouts

Source: WSJ

Posted on 11 Apr 2011

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Indicating that its investment in insolvent insurance giant American International Group Inc. (AIG) could see an estimated $20 billion profit, a top U.S. Treasury official predicted that the U.S. government would eventually see a profit on its crisis-era bailouts.

Jeffrey A. Goldstein, Treasury's under secretary for domestic finance and the Obama administration's point man for the Troubled Asset Relief Program (TARP), told a panel discussion at Yale University that, depending on market conditions, the government could earn money on its controversial private-sector investments.

Saying that "a pathway to exit is in sight," Goldstein said the government was poised to end its unpopular bailout of financial institutions and auto makers, even as he lauded its success.

He added that the government was committed to winding down the insolvent mortgage behemoths Fannie Mae (FNMA) and Freddie Mac (FMCC), but the process must be done "deliberately and sensibly."

The two former high-flying institutions remain the most visible legacies of the 2008 financial crisis. Many lawmakers are clamoring for the two entities to be unwound in a way that will see a return on taxpayer dollars.
Goldstein saw that as a medium-term possibility, but he cautioned against moving too hastily in a way that could undermine markets' confidence anew.

He said there were "a number of policy levers" the government could use to help unwind Fannie Mae and Freddie Mac, but that moving too swiftly to end taxpayer support for the two could "create havoc."

"The administration is committed to a system where the private market is the primary provider of credit," Goldstein said. "We can't have a repeat of privatized gains and socialized losses, which is essentially what Fannie and Freddie were about."

He said the total costs of the bailout, once realized gains were factored in, would total "less than 1 percent" of the economy's numerical value.