April 20 (Bloomberg) — The U.S. Treasury Department wants the public to believe the government’s bailouts of the financial sector might make money for taxpayers. It’s easy to see why.
If the government could show an overall profit, the implication would be that bailouts must be a good thing. Put aside the moral hazard they create, by encouraging reckless behavior. Never mind that the country’s largest too-big-to-fail banks are larger today than when the financial crisis began in 2007. The leaders who pulled off this amazing feat would deserve our praise, and everything will have worked out for the best — or so goes this line of thought.
Whatever logic there is to this reasoning falls apart, however, if the prospect of future gains is false. And sure enough, it probably is.
The Treasury Department a week ago released its latest cost estimates for the government’s numerous crisis-response programs. “Overall, the government is now expected to at least break even on its financial stability programs and may realize a positive return,” the report said. Unfortunately this conclusion rests heavily on wishful thinking and creative accounting, which becomes obvious when you dig into the report’s footnotes.