I was reading the China debt thread and I starting wondering - as these bailout loans get repaid, are we going to pay down the corresponding debt? Should we? Or is it like a student loan where the rate is so low that you can use the money to finance other projects, doubling down on the stimulus?
My guess is that it wouldn't go towards paying off the debt. I hope they do pay off the debt, but the government gives me little reason to believe they will.
I agree. One of the characteristics of a democratic country is perpetual budget deficit. That's pretty natural because politicians are always short-sighted animals who always make big promises backed by other people's money. But Ben discovered that we can print money, so there is hope.
It could. Repayment of the S&L bailout did reap some pre-inflation profit and the parties who participated in the LTCM corporate bailout did come out ahead, but it's wildy optimistic to assume the toxi...troub...err legacy assets will make money with current market prices. I think the ones the government already took over as collateral was at a wildy different market value, and the ones to be sold under the PPIP, should there be enough players to sell it, is rigged so that the risk is borne on the taxpayer, and the most we can hope for is ~half the profits. So you get the feel that our economic policy makers didn't hinge their actions upon making money, but rather mitigating the price tag for bailing out financial institutions based upon their own measurements of total losses. Converting our preferred stock into common was one of those crafty examples of bailing out without going through Congress. And it's still my opinion that the government has staked too much in the trash for cash program to admit any further devaluation of their and the banks' toxic assets. But we could very well be sitting on a trillion dollar windfall over several years based upon a purely optimistic and speedy financial recovery. Or maybe repayment will pace out to match the interest payments we'll pay for our expected trillion/year federal budgets for the next decade.
It will be used just like the surplus from the late '90s: Republicans will want another tax cut, and Dems will want to "save Social Security" or finance new or existing stimulus. The path the electorate tells them to choose depends on how economy's doing when or if the bailouts get paid back.
