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.
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|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.|