November 30, 2010
Now That TARP Has Proven The Viability of Government As Vulture Capitalist, When Will The Government Start Acting Like A Vulture Captialist?
Posted by David Zaring

The Congressional Budget Office has revised its calculations, in light of strong rebounds/asset sales by AIG and GM, to conclude that it will only lose $25 billion on the $700 billion bailout.  Not nothing, to be sure, but it turned a profit on the banking bailout, most notability with the bailout of Bank of America.  (Fannie, and Freddie, to be sure, remain waaaay out of the money).

One way to think about what the government did, as I have argued elsewhere, is to think of it as a vulture, or distressed asset, fund.  It provided needed financing when no other institution would or could do so.  And this would be fine, if it acted like vulture funds do, which is to exact steep prices for the help - super-high interest rates, the ability to break up the underlying assets (i.e., the banks) and strip them for whatever will bring the most value, and so on.  If you're a business, you don't want your final chance to come courtesy of a vulture fund.

But it isn't clear that the government has exacted those steep terms.  Which is, if this isn't too obvious, why much of the bailout has been styled a "bailout" instead of, as Chris Flowers might put it, "low-life grave-dancing."  

If one of your remits is economic stability, you can't be precisely like Crassus, and force sales while your fire brigade debates whether to put out the fire.  But I think that the vulture fund paradigm is a useful way to think about what the government did during the crisis - and about what it has not done.

Administrative Law, Financial Crisis | Bookmark

TrackBacks (0)

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8345157d569e2013489a1b12b970c

Links to weblogs that reference Now That TARP Has Proven The Viability of Government As Vulture Capitalist, When Will The Government Start Acting Like A Vulture Captialist?:

Bloggers
Papers
Posts
Recent Comments
Popular Threads
Search The Glom
The Glom on Twitter
Archives by Topic
Archives by Date
January 2019
Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31    
Miscellaneous Links