There's an interesting Bloomberg article from John M. Berry that argues that the bailout will actually generate a profit from the government. He calls it a massive carry trade.
What's a carry trade? It's a trade where the cost of raising capital for an investment is lower than the return provided by that investment. The difference is profit. The carry trade was hugely popular in the 1990s between the Japanese and US. Investors could borrow money very cheaply in Japan because of their recession (interest rates were near 0 at the time) and then reinvest it in the United States at a much higher return.
In this case, the government is borrowing money from the public and foreign governments via Treasuries at 3-4% and purchasing assets that should yield 8-10%.
Based on this, he predicts positive cash flow for the government and an overall gain. The $700 billion is invested capital, not lost money.
Related Articles:
Ron Paul's View of the Paulson Bailout Plan by Sam Cass - Sep 23, 2008
Hundreds of Economists Including 3 Nobel Winners Urge Congress Not to Rush on Bailout Plan by Sam Cass - Sep 25, 2008.
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