This is a big mess, but I think this article: The Paulson Plan Will Make Money For Taxpayers – is probably right.
I think, however, the article missing the other big issue: short vs. long-term outlook. Obviously, the fed isn’t doing the bailout as an investment, but the very structure of the bailout would appear to be an investment. The government is effectively buying all of these assets. The advantage the government has is that it doesn’t need to make money and no one really cares about its balance sheet (yeah we can debate whether that’s good or not later).
I believe most of these assets will have some value… eventually. How long is open to debate.
So I think this bailout will generate money for the government (directly – I also think it will benefit indirectly as the economy recovers). Hopefully they won’t waste it… but they probably will.
What they should do is basically structure the bailout as a special case U.S. sovereign wealth fund. That might restrict how the use any upside that should come of this.
At the very least it should be packaged and contained so we can track and understand the outcome. IE: in 20-40 years, did the bailout make money? lose money? break even? I’ll given even odds that we won’t even know. Perhaps I’m too cynical.