HISTORY OF U.S. GOVERNMENT BAILOUTS

Like you, I am very concerned about what's going on in Washington today. As I write this Monday evening, September 29, the House "bailout bill" failed. By the time you read this, perhaps a revised bill is in the process of becoming law. Keep in mind that bailout are not a new government tool. In fact, prior to 2008, our government bailed out companies, industries, and even one city.

This year, we’ve already begun bailing out Bear Stearns, Fannie Mae, Freddie Mac, American International Group (AIG), and now what we might call the “Troubled Asset Program.” So how did previous bailouts compare with the current ones? Take a look at this list posted bywww.propublica.org.

Recent History of Bailouts

1970s

*All numbers are changed to reflect current inflation, expressed in 2008 dollars.

Penn Central Railroad

On June 21, 1970, Penn Central Railroad declared bankruptcy and the government provided $3.2 billion* in bailout funds.

Emergency Loan Guarantee Act

In August, 1971, Congress passed the Emergency Loan Guarantee Act, which provided funds to any major business enterprise in crisis. Lockheed was the first to qualify and received $1.4 billion* in bailout funds.

Franklin National Bank

In the first part of 1974, Franklin National Bank was on the verge of collapse. The Federal Reserve stepped in with a $7.7 billion* bailout loan.

New York City Seasonal Financing Act

In 1975, President Ford signed the New York City Seasonal Financing Act, which released $9.4 billion* in loans to the city.

1980s

Chrysler Loan Guarantee Act

In 1980, the Chrysler Loan Guarantee Act was passed, which gave that company loans of $3.9 billion*.

Continental Illinois

In 1984, Continental Illinois, the nation’s eighth largest bank, was on the brink of bankruptcy and received $9.5 billion* from the government.

Financial Institutions Reform Recovery and Enforcement Act

In 1989, President George H. W. Bush signed the Financial Institutions Reform Recovery and Enforcement Act, which bailed out the savings & loan industry by infusing $293.8 billion* to avert a crisis.

2001

Air Transportation Safety and Stabilization Act

After September 11, 2001, President George W. Bush signed into law the Air Transportation Safety and Stabilization Act, which compensated airlines for the mandatory grounding of aircraft after the attacks. Our government fronted $18.6 billion* to the airline industry.

And that brings us to our most recent financial bailouts:

2008

Bear Stearns

JP Morgan Chase and the U.S. federal government bailed out Bear Stearns when the financial giant neared collapse. JP Morgan purchased Bear Stearns for $236 million and the Federal Reserve provided a $30 billion credit line to ensure the sale could move forward.

Fannie Mae and Freddie Mac

The near collapse of Fannie Mae and Freddie Mac was yet another symptom of the sub-prime mortgage and housing crisis. In an effort to prevent further turmoil within the financial market, the U.S. government seized control of the two largest housing finance entities and guaranteed up to $100 billion for each company to ensure that they would not fall into bankruptcy.

AIG

When AIG was unable to secure a loan from the private sector, the federal government intervened by seizing control of the insurance giant and loaning it $85 billion.

The Troubled Asset Relief Program

As of this writing, The Troubled Asset Relief Program (or whatever name they will give it) is still being hammered out through Congress. For the latest information, simply turn to the front page of any newspaper.

How did we make out on the nine bailouts prior to the 2008 bailouts?

According to www.propublica.com, the U.S. government actually made a profit on the New York City, Chrysler, and airline industry bailouts. The rest resulted in losses to the American taxpayer—though in some cases, the government got back most of the money they had loaned.

How will the 2008 bailouts work out?

It’s too early to tell. But be assured that some of the best minds in finance, economics, and the government have studied the history above. And they are doing their best to design the current bailouts so that they can not only ease the crisis today, but also be in the best position to recoup their losses tomorrow.

The Author

Les Atchley is the founder of Atchley Financial Group, a national wealth management firm headquartered in Coeur d’Alene, Idaho that specializes in retirement, investment, and estate planning. He and his team of experts help clients make intelligent decisions with their wealth in order to realize their goals and achieve financial independence. You can contact him directly at 208-664-1900 or learn more about the firm by visiting their website at AtchleyFinancial.com.

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