The Washington Post (a.k.a. Fox on 15th Street) did another one of its cheerleading pieces for the bank bailouts, telling readers that the country is likely to make money on its bailout of AIG in its lead editorial. This is of course silly since the Post's calculation assumes no opportunity cost for money.

Under the Post's definition of profit, if the government lent out $10 trillion for 30 year mortgages at 1.0 percent interest, and got this money paid back, then it would have made a profit. This is not the way that businesses ordinarily do their accounting.

The government made huge amounts of money available to AIG in the middle of a financial crisis. At that time, this money would have carried an enormous premium in the private sector. In other words, private firms would have paid very high interest for this money, especially since it came with an explicit guarantee that the government would not allow AIG to fail.

For this reason, it is absurd to argue that the government made a profit on AIG. It could have gotten a far higher return on almost any other use of this money.

The piece also concludes by implying that a full cost-benefit analysis of the bailout compared to a counter-factual where AIG was allowed to fail would almost certainly show that the bailout was a huge winner. This is far from clear.

It took Argentina 1.5 years to recover the ground lost during its financial crisis in 2001-2002. It then sustained solid growth until the world economic crisis brought its economy to a standstill in 2009.

While our economic leaders may not be as competent as those in Argentina, even if it took the U.S. twice as long to regain the lost ground, we would still have been back to 2008 levels of output by last fall and seeing strong growth now instead of the modest 2.5-3.0 percent growth rate projected by the Congressional Budget Office and other forecasters.

In addition, the country would now have a much smaller financial sector and would be seeing much less inequality as companies like AIG, Goldman Sachs, Morgan Stanley and other big financial firms would have all failed and be reorganized. This would almost certainly mean that the financial sector would not be the same drag on the economy in the future as it has been in the last three decade.

If the Washington Post really was interested in a full cost-benefit analysis of the bailout it would need to consider these aspects of the alternative world. It obviously does not want its readers to consider such issues.