In light of the present financial meltdown it seems that the administration’s proposed method of rearranging the deck chairs is to buy up billions of the banks’ bad debt. In media reports this is being compared to the Resolution Trust Corporation which was formed by the US government in the aftermath of the 1980s Saving and Loan fiasco.
Ok. Ignoring anything else, all I want to know is: how did the Resolution Trust Corporation actually do? With the benefit of hindsight, was creating the Resolution Trust Corporation a good method of dealing with the Saving and Loan Crisis? Did the RTC make money? Did it lose money?
It worked pretty well, though it took years to unwind all the bad S&L debt.
An NPR piece a while back claimed it actually made the government money in the long run, as bad loans purchased for pennies on the dollar turned out not to be entirely worthless. I’d take that statement with a grain of salt, even if factually true, but the fact remains that it can probably be counted a success. As “investments”, those crappy loans probably yielded abysmal returns, even if they didn’t actually lose money, but the government’s in a position to wait it out.