CNBC Analyst Debunks Myth Bailout Will Make a Profit

The theory that bailout legislation recently defeated in the House of Representatives would make money for the federal government has been propagated by the financial media. But according to a recent report released by the International Monetary Fund (IMF), a profit is unlikely.

The September 2008 report from the IMF stated the chances of the government recouping anything more than just a fraction of the bailout costs is unlikely. Alex Patelis, head of international economics at Merrill Lynch, explained the report and cited history as an indicator on CNBC's Sept. 29 "Squawk on the Street."

"What you find in the IMF report is of course that banking crises happen all the time," Patelis said. "If you look at the history of banking crises - that on average they cost about 13 percent of GDP to the government, both in terms of direct recapitalization costs, but also lost revenue."

One of the chief proponents of the bailout has been CNBC's Jim Cramer. Cramer said there was a chance the government would make money on his Sept. 23 show.

"And it looks like Washington will be taking an equity stake in any company that takes part in the plan, which means there's even a chance to make money rather than lose it," Cramer said.

If Congress were to pass a proposal in some form, the government stands to get back just pennies on the dollar of the bailout's total cost, according to Patelis.

"And unfortunately, the average ... recouping is about 18 percent of that cost - that is what the government manages to take back in return," Patelis added. "So the odds are not really in favor of the Treasury making a profit on this top program."

Opponents of the bailout disagree with the proposal for a myriad of reasons - including cost and expansion of government power.