69 Pages Posted: 3 Nov 2009 Last revised: 24 Dec 2009
Date Written: December 1, 2009
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.
Suggested Citation: Suggested Citation
Veronesi, Pietro and Zingales, Luigi, Paulson's Gift (December 1, 2009). Chicago Booth Research Paper No. 09-42. Available at SSRN: https://ssrn.com/abstract=1498548 or http://dx.doi.org/10.2139/ssrn.1498548