[Nesster]

Fortune magazine analysis of the financial bailouts concludes it was necessary and is producing a profit for the government. This despite its flaws and unpopularity.

Surprise! The big bad bailout is paying off - The Term Sheet: Fortune's deals blog Term Sheet

FORTUNE -- The bailout of the financial system is roughly as popular as Wall Street bonuses, the federal budget deficit, or LeBron James in a Cleveland sports bar. You hear over and over that the bailout was a disaster, it cost taxpayers a fortune, we didn't really need it, it didn't work, it was a failure. It has become politically toxic, which inhibits reasoned public discussion about it.

But you know what? The bailout, by the numbers, clearly did work. Not only did it forestall a worldwide financial meltdown, but a Fortune analysis shows that U.S. taxpayers are coming out ahead on it -- by at least $40 billion, and possibly by as much as $100 billion eventually. This is our count for the entire bailout, not just the 3% represented by the massively unpopular Troubled Asset Relief Program. Yes, that's right -- TARP is only about 3% of the bailout, even though it gets about 97% of the attention.

What they fail to mention: compensation controls made it certain that Wall St would bend over backwards to pay back the government as soon as they could, in order to return to their accustomed level of bonuses.

A good summary of what happened:

We'll get to the detailed numbers in a bit. But for now, we'd like to remind you why the bailout exists. The revisionist idea that the bailout is the problem -- rather than excesses in the financial system -- is simply stunning to those of us who watched the financial crisis surface in 2007, when two Bear Stearns hedge funds speculating in mortgage securities collapsed, and reach a crescendo in September 2008, when Lehman Brothers went bankrupt. Many in the financial world applauded Washington's decision to let Lehman go under -- but that applause was quickly replaced by fear as unanticipated consequences of the bankruptcy surfaced.

Lehman's collapse touched off a terrifying run on money market mutual funds when the Reserve Primary Fund announced it could pay holders only 97¢ on the dollar because of Lehman-related losses. Savers who'd considered money funds as safe as federally insured bank deposits stampeded for the exits, pulling out hundreds of billions of dollars. It took federal guarantees of more than $3 trillion of money market fund balances -- bailout! -- to stop this modern-day bank run.

Some hedge funds that used Lehman's London office as their "prime broker" had their assets frozen, setting off a run on prime brokers Goldman Sachs (GS) and Morgan Stanley (MS) as U.S. hedge funds pulled out their assets to avoid getting frozen if either firm failed. Goldman and Morgan were close to running out of cash when the government saved them by making them bank companies with access to the Fed's lending facilities. Bailout! Bailout! GE Capital (GE) was having trouble rolling over its borrowings, and was rescued by a government guarantee program. Bailout! Then there was American International Group, the now infamous AIG (AIG), which required a 12-figure rescue.

Had Goldman, Morgan Stanley, GE Capital, AIG, and several giant European banks not gotten bailouts and instead failed, even capital-rich J.P. Morgan Chase (JPM) would have gone under, because it wouldn't have been able to collect what these and other players owed it. There would have been trillions in losses, worldwide panic, missed payrolls, and quite likely the onset of Great Depression II. That's why we needed a bailout. And why we got it.

Their conclusion:

Our accounting is unconventional because in some places we count what has happened, in some places we project what's likely to happen, and in some places we've done our own numbers because no others exist. If things break right, taxpayers could come out $100 billion ahead: our $42 billion profit estimate, plus a $25 billion reduction in the Fannie/Freddie cost, $25 billion more in Fed profits, and a reduction in the $19 billion expense we're showing for TARP.

We don't expect any of what we've told you to make the bailout popular -- we're not wild about it ourselves for the same reasons many people dislike it. The government was picking winners and losers. Big Government bailed out Big Finance while letting average taxpayers lose their homes. Creditors of bank companies and AIG got far too good a deal at taxpayer expense. Wall Street is back to paying enormous bonuses (and whining about being demonized), while average Americans, whose tax dollars saved the Street, are still suffering. And, of course, the economy is down 7 million jobs from its peak in 2007.

But something needed to be done when the financial world was on the brink of the abyss, and the government did something. No matter what your views are, you should be happy that taxpayers, almost miraculously, are coming out ahead rather than hundreds of billions of dollars behind.

When our boss assigned us to find out how much the financial rescue cost, we expected to find a monumental loss, because Fannie Mae and Freddie Mac seemed like a bottomless pit. Instead, we discovered that bailout profit payments from the Fed -- which we hadn't previously thought of as a profit center -- are virtually certain to exceed taxpayer losses on Fannie and Freddie. We were surprised -- and pleased -- to discover taxpayers showing a profit on the bailout. We hope that you are too.

Elsewhere, I've read that this amounted to a financial panic - #15 in US history
America's 15 - Chicago Tribune

Two years have passed since the end of a severe economic downturn, and the lackluster recovery already appears in jeopardy. An editorial in the Chicago Tribune asks the question: "When are we to have better times?" But this wasn't a recent editorial. The Tribune offered this plaintive query Oct. 4, 1859. It would not be out of place today.

One hundred and fifty-two years ago, this newspaper's editors were assessing the aftermath of the Panic of 1857, a recession that bore many similarities to our recent experience. In fact, our current economic rebound is best understood as a function of the special type of recession we experienced in 2008 — a financial "panic."

Unlike traditional business cycle recessions, panics are characterized by a widespread loss of faith in the banking system, the demise of numerous financial institutions, and a collapse of credit in the economy. The critical insight is not that panics are more severe, although they often are, but rather that they follow a specific economic path. The route to rebuilding an economy after a panic is slow and painful. Our current recovery will feel far different from recoveries of the past half century. The strong months won't feel quite right and the weak months will feel as if a second recession is at hand.

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The U.S. has a long, if largely forgotten, history of panics. Roger Babson, the pioneering market statistician and famed forecaster of the 1929 stock market crash, wrote a series of articles about them for The New York Times in 1910. He documented 13 panics in American history up until that time — the first in 1791 and the last in 1907.The bank crisis and panic of 1930-1933 was No. 14. That makes 2008 the 15th panic in U.S. history . The good news, of course, is that we have survived 14 prior episodes, and can survive this panic as well. But beyond mere survival, the question remains: what path will our recovery take?

There are remarkable similarities in the events that trigger panics. A century-old economic text, "A Brief History of Panics and their Periodical Occurrence" noted, "The symptoms of an approaching panic… are wonderful prosperity… a rise in the price of all commodities, of land, of houses, etc, etc…, by the gullibility of the public, by a general taste for speculating in order to grow rich at once, by a growing luxury leading to excessive expenditures…." The book further cited excessive leverage in the financial system, a point taken up by Babson, who likened the creation of new financial institutions to "putting out a flame by pouring oil over it." How easily all this could have described the years preceding the Panic of 2008!

Recoveries from panics also follow similar routes. Fidelity Investments allowed me access to its famed chart room in Boston, where graphs of more than 200 years of economic and financial markets history adorn the walls. The panics of the 19th century looked nearly identical — and reminiscent of our own recent history — an initial period of deflation, soaring unemployment and plummeting asset values. Putting the charts together with other data sources shows recovery periods marked by long periods of private sector debt reduction, extended high levels of unemployment and slow economic growth.