What Did the American Taxpayer Get for its Billions?

A fellow journalist emails:  "I badly want someone to explain to me whether the taxpayer realizes any benefits from BoA, Citi, Goldman, etc.'s profits. Or was this just a massive "Thanks for nothing, Tim" moment?"

Hard to say.  On the one hand, as a wise economist Brad DeLong* said to me last fall, "You can't bail out the financial system without bailing out those who are long financial assets".  In other words, banks and bankers.  And not bailing out the financial system has been pretty conclusively demonstrated to have ugly, ugly results.

What benefit might we get from all these record profits?  A more liquid, better capitalized banking system.  On the other hand, if the bankers simply ship the profits back out the door as dividends and paychecks, what we'll get is a big fat pile of nothing.

Which will happen?  We don't know yet, for all of our dark suspicions.  A lot has to do with the regulators--and also with the next few quarters.  It wasn't totally surprising that the banks posted substantial profits as the capital markets recovered from total meltdown.  Probably things won't look quite so outlandish in the future.

*  I was not trying to deny Brad his rightful due; rather, I try not to quote people by name if the conversation wasn't clearly on the record, because sometimes people get upset.  Now that he has outed himself, I gladly attribute it to its wise source.