Paulson’s Gift

Paulson’s Gift

We calculate the costs and benefits of the largest ever U.S. Government intervention in the financial sector announced the 2008 Columbus-day weekend. We estimate that this intervention increased the value of banks’ financial claims by $131 billion at a taxpayers’ cost of $25 -$47 billions with a net benefit between $84bn and $107bn. By looking at the limited cross section we infer that this net benefit arises from a reduction in the probability of bankruptcy, which we estimate would destroy 22% of the enterprise value. The big winners of the plan were the three former investment banks and Citigroup, while the loser was JP Morgan.

Pietro Veronesi and Luigi Zingales

Journal of Financial Economics

September 2010

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By |2018-01-01T00:00:00-08:00January 1st, 2018|Financial Regulation, Reference, Systemic Risk/Financial Crises|