Bank Bailouts: A Tale of Two Countries

The bailouts of 2008 were a grand experiment that started much debate, criticism and of course, banker bashing. However, now nearly five years on the dust is starting to settle and it would appear that one country got it right and one failed, spectacularly.

The main burden of the 2008 bailouts fell on the governments in the UK and the US and taxpayers (or international investors as both countries are running huge budget deficits and need to borrow money to fund even the basic day-to-day running of the countries) had to fork out an unfathomable amount of cash to prop up banks that could not sustain their (mostly synthetic) assets.

Five years on and it turns out this was a very lucrative decision, well for the US anyway. On the other side of the pond a mixture of political brinksmanship and misunderstanding of the banking system and a socialist left wing style of thinking has left the government and taxpayers in a right mess.

US banks have, for the most part, already paid back their loans:

Company Cost of Bailout Total Repaid Government Profit
AIG $68 $73 $5
Bank of America $45 $50 $5
Citigroup $45 $58 $13
JPMorgan Chase $25 $27 $2
Wells Fargo $25 $27 $2
Goldman Sachs $10 $11 $1
Morgan Stanley $10 $11 $1

Figures in $US billions

 Meanwhile, in the UK the bailouts of Royal Bank of Scotland, which cost the government $70 billion and Lloyds, which cost $55 billion are going nowhere and the government is fighting over what to do with the mostly taxpayer owned banks now that they are returning to health.

 [Constant political wrangling and negative newsflow almost every day about these banks is making it almost impossible for the shares to move up to and stay above the level the government needs to be able to sell at a profit.]

 Some are calling for the bank shares to be given to the public, incurring a multi-billion dollar (pound) loss for the government but winning votes, (considering only 20% of the UK population own any kind of shares most will have no way of receiving the stock). There are also calls for the banks to be split up and run as government entities, funding businesses in the UK.

 Whatever the outcome, the recent departure of RBS’ chief turnaround strategist Stephen Hester, highlights how disastrously politicised these bailed out banks in the UK have become. Perhaps next time we should just leave it to the Americans to come and save us.

Note: Fannie and Freddie are not included on the bailout list above but their bailouts are also becoming highly profitable for the US government.

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