A Short History of Government Bailouts

July 7, 2009 at 12:22 | Posted in bail out, economics | Leave a comment

I would think that ProPublica can hardly be accused of being a nest of crazy economists on the Vienna Express to nowhere, so I thought their little history of government bailouts would be of some interest.

 

History of U.S. Gov’t Bailouts

Updated: April 15, 2009 12:02 pm EDT

With the flurry of recent government bailouts, we decided to try to put them in perspective. The circles below represent the size of U.S. government bailout, calculated in 2008 dollars. They are also in chronological order. Our chart focuses on U.S. government bailouts of U.S. corporations (and one city). We have not included instances where the U.S. government aided other nations.

Check out how the Treasury did in the end after initial government outlays. Also, check out our ultimate bailout guide. We’re tracking every taxpayer dollar, every recipient and every program in the current financial crisis. All searchable – and translated into English.

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2008 – Bear Stearns – $30 billion
Click bubble for more info

Industry/Corporation
Year
What Happened
Cost in 2008 U.S. Dollars


Penn Central Railroad
1970
In May 1970, Penn Central Railroad, then on the verge of bankruptcy, appealed to the Federal Reserve for aid on the grounds that it provided crucial national defense transportation services. The Nixon administration and the Federal Reserve supported providing financial assistance to Penn Central, but Congress refused to adopt the measure. Penn Central declared bankruptcy on June 21, 1970, which freed the corporation from its commercial paper obligations. To counteract the devastating ripple effects to the money market, the Federal Reserve Board told commercial banks it would provide the reserves needed to allow them to meet the credit needs of their customers. (What happened after the bailout?)
$3.2 billion


Lockheed
1971
In August 1971, Congress passed the Emergency Loan Guarantee Act, which could provide funds to any major business enterprise in crisis. Lockheed was the first recipient. Its failure would have meant significant job loss in California, a loss to the GNP and an impact on national defense. (What happened after the bailout?)
$1.4 billion


Franklin National Bank
1974
In the first five months of 1974 the bank lost $63.6 million. The Federal Reserve stepped in with a loan of $1.75 billion. (What happened after the bailout?)
$7.8 billion


New York City
1975
During the 1970s, New York City became over-extended and entered a period of financial crisis. In 1975 President Ford signed the New York City Seasonal Financing Act, which released $2.3 billion in loans to the city. (What happened after the bailout?)
$9.4 billion


Chrysler
1980
In 1979 Chrysler suffered a loss of $1.1 billion. That year the corporation requested aid from the government. In 1980 the Chrysler Loan Guarantee Act was passed, which provided $1.5 billion in loans to rescue Chrysler from insolvency. In addition, the government’s aid was to be matched by U.S. and foreign banks. (What happened after the bailout?)
$4.0 billion


Continental Illinois National Bank and Trust Company
1984
Then the nation’s eighth largest bank, Continental Illinois had suffered significant losses after purchasing $1 billion in energy loans from the failed Penn Square Bank of Oklahoma. The FDIC and Federal Reserve devised a plan to rescue the bank that included replacing the bank’s top executives. (What happened after the bailout?)
$9.5 billion


Savings & Loan
1989
After the widespread failure of savings and loan institutions, President George H. W. Bush signed and Congress enacted the Financial Institutions Reform Recovery and Enforcement Act in 1989. (What happened after the bailout?)
$293.3 billion


Airline Industry
2001
The terrorist attacks of September 11 crippled an already financially troubled industry. To bail out the airlines, President Bush signed into law the Air Transportation Safety and Stabilization Act, which compensated airlines for the mandatory grounding of aircraft after the attacks. The act released $5 billion in compensation and an additional $10 billion in loan guarantees or other federal credit instruments. (What happened after the bailout?)
$18.6 billion


Bear Stearns
2008
JP Morgan Chase and the federal government bailed out Bear Stearns when the financial giant neared collapse. JP Morgan purchased Bear Stearns for $236 million; the Federal Reserve provided a $30 billion credit line to ensure the sale could move forward.
$30 billion


Fannie Mae / Freddie Mac
2008
On Sep. 7, 2008, Fannie and Freddie were essentially nationalized: placed under the conservatorship of the Federal Housing Finance Agency. Under the terms of the rescue, the Treasury has invested billions to cover the companies’ losses. Initially, Treasury Secretary Hank Paulson put a ceiling of $100 billion for investments in each company. In February, Tim Geithner raised it to $200 billion. The money was authorized by the Housing and Economic Recovery Act of 2008.
$400 billion


American International Group (A.I.G.)
2008
On four separate occasions, the government has offered aid to AIG to keep it from collapsing, rising from an initial $85 billion credit line from the Federal Reserve to a combined $180 billion effort between the Treasury ($70 billion) and Fed ($110 billion). ($40 billion of the Treasury’s commitment is also included in the TARP total.)
$180 billion


Auto Industry
2008
In late September 2008, Congress approved a more than $630 billion spending bill, which included a measure for $25 billion in loans to the auto industry. These low-interest loans are intended to aid the industry in its push to build more fuel-efficient, environmentally-friendly vehicles. The Detroit 3 — General Motors, Ford and Chrysler — will be the primary beneficiaries.
$25 billion


Troubled Asset Relief Program
2008
In October 2008, Congress passed the Emergency Economic Stabilization Act, which authorized the Treasury Department to spend $700 billion to combat the financial crisis. Treasury has been doling out the money via an alphabet soup of different programs. Here’s our running tally of companies getting TARP funds.
$700 billion


Citigroup
2008
Citigroup received a $25 billion investment through the TARP in October and another $20 billion in November. (That $45 billion is also included in the TARP total.) Additional aid has come in the form of government guarantees to limit losses from a $301 billion pool of toxic assets. In addition to the Treasury’s $5 billion commitment, the FDIC has committed $10 billion and the Federal Reserve up to about $220 billion.
$280 billion


Bank of America
2009
Bank of America has received $45 billion through the TARP, which includes $10 billion originally meant for Merrill Lynch. (That $45 billion is also included in the TARP total.) In addition, the government has made guarantees to limit losses from a $118 billion pool of troubled assets. In addition to the Treasury’s $7.5 billion commitment, the FDIC has committed $2.5 billion and the Federal Reserve up to $87.2 billion.
$142.2 billion

====

Now for the real fun, check out their summary of ‘results":

What Happens After a U.S. Gov’t Bailout?

September 25, 2008 4:56 p.m. EDT

With the flurry of recent bailouts, we decided to look beyond initial government outlays to see how the Treasury did in the end. The summaries that follow leave final judgment to you, in part because it’s difficult to nail down exact profit or loss. Moreover, no one can say what might have happened without government intervention. Our chart focuses on U.S. government bailouts of U.S. corporations. We have not included United States government aiding other nations. Figures reflect 2008 constant dollars.

To read a history of U.S. government bailouts, click here or on the year of each bailout.

Want to receive an e-mail alert when we publish public data and documents on ProPublica? Sign up here.

Industry/Corporation
Start of Bailout
After the Bailout, What Happened?

Penn Central Railroad
1970
In 1971, the government provided $676.3 million in loan guarantees (What’s this?A statutory commitment by the federal government to pay part or all of a loan’s principal and interest to a lender or the holder of a security in case the borrower defaults. The Federal Credit Reform Act of 1990 requires that the cost of guaranteed loans be included in the computation of budget authority and outlays. The congressional budget resolution includes loan guarantee totals. (Parliamentary Outreach Program, U.S. House of Representatives)). In 1976, the federal government consolidated the still struggling Penn Central with five other railroad companies that were also failing to form Consolidated Rail, or Conrail. The government spent $19.7 billion, including roughly $7.7 billion for the initial investment, to keep Conrail operating. By 1981, Conrail began to earn a profit. The government sold Conrail in 1987 for $3.1 billion. In addition to the sale price, the Treasury received a $579 million dividend from Conrail.

Lockheed
1971
By 1977, Lockheed had paid off its loans, and its dependency on the federal loan guarantees came to an end. The government earned about $112.22 million in loan fees.

Franklin National Bank
1974
As the story behind Franklin National’s failure unfolded, evidence emerged of corruption and shady business practices among the bank’s executives — several were eventually convicted. With the need for further intervention apparent, the FDIC stepped in as receiver that same year and sold Franklin National’s104 branches and other assets to European American Bank. By 1981 the FDIC had sold Franklin assets worth about $5.1 billion. The agency was still owed another $185.3 million in interest.

New York City
1975
Until 1986, the government continued using loan guarantees and direct loans to support the fiscally-troubled city. All the loans, loan premiums and fees have since been repaid.

Chrysler
1980
By 1983, seven years earlier than the scheduled deadline, Chrysler had paid back its loan with the aid of the guarantees from the U.S. government. The corporation bought back the 14.4 million stock warrants (What’s this?)A security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than current market. This "warrant" is then traded as a security, the price of which reflects the value of the underlying stock. Warrants are usually issued as a "sweetener" bundled with another class of security to enhance the marketability of the latter. Warrants are like call options, but with much longer time spans — sometimes years. (Washington Post) given to the government in exchange for the loan guarantee. Because Chrysler’s finances had improved and its stock had bounced back — it reported $1.7 billion in profits for the second quarter of 1984 — the government netted a profit of more than $660 million from its bailout investment.

Continental Illinois National Bank and Trust Company
1984
It took the FDIC seven years to completely divest itself of Continental Illinois — the bailout plan had given the government 80 percent ownership over the bank — through the gradual sale of its share holdings. By 1991, Continental Illinois had been returned to the private sector, but the FDIC had suffered a $1.8 billion loss. Three years later BankAmerica Corp. acquired the bank.

Savings & Loan
1989
The Financial Institutions Reform Recovery and Enforcement Act authorized $293.8 billion dollars to finance the folding of numerous failed S&Ls. The final tab for the bailout was roughly $220.32 billion. Of that total, taxpayers were responsible for about $178.56 billion; the private sector covered the rest.

Airline Industry
2001
The Chrysler and airline bailout plans had a commonality: stock warrants. A provision inserted into the ATSS Act, which allowed the Treasury to purchase stock at below-market prices from any airline receiving a loan guarantee, allowed the Treasury to earn money. Reports varied on the total net profit, ranging from $141.7 million to $327 million. The loan guarantee program suffered one loss of about $23.2 million when ATA Airlines filed for bankruptcy protection.

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