Bragging About The Bailout

I know I just wrote a lengthy piece on a few parts of President Obama's speech in New York today, but there was one other aspect that I had to comment on briefly. In one portion of his speech, the President says how big a success the bailout has been for taxpayers thus far. I was extremely bothered by the tone of this claim. Here's what he says:

After months in which public dollars were flowing into our financial system, we are finally beginning to see money flowing back to the taxpayers. This doesn't mean taxpayers will escape the worst financial crisis in decades unscathed. But banks have repaid more than $70 billion, and in those cases where the government's stake has been sold completely, taxpayers have actually earned a 17-percent return on their investment.

I'm not sure what citing this statistic intends to prove. $70 billion amounts to 10% of the $700 billion bailout. And it seems like Obama is really only talking about a subset withing that 10% "where the government's stake has been sold completely." So at best, bragging about that 17 percent return is kind of like saying that 10% of the stocks in your portfolio are doing great, without really mentioning the other 90%.

Certainly, taxpayers have done well with what's been repaid so far, but I'd argue that most of those banks needed the bailout least. That's precisely why they paid it back first. I'd worry a lot more about the banks who will take years to pay their share back. And of course, there will almost certainly be losses to taxpayers for the portions that went to AIG, the auto companies, and the homeowner bailout. And those portions account for a lot more than 10%.

In reality, the bailout will likely end up costing taxpayers something, and possibly a lot. How much is completely uncertain. That's why I think that waving the "Mission Accomplished" banner because a meager 10% of the bailout has done well is rather premature.