Friday, March 08, 2013

261 Bloomberg: Banks are heavily subsidised by the tax payer!

This blog:

As we all know the crisis was caused by banksters and by Supervisors ( like Greenspan and the SEC ) who made mistakes.
Their allies were the Media, who tell us all the time that they are critical, but in reality are complices, at least the higher echelons of the Media, who use their power to send off the real critical journalists.  The result: something that work s like a conspiracy.
Not only the Media lack teeth, also academia: the large majority of monetary economists depend on the Fed for their career: Huffington.

But of course, it is not a conspiracy. It is only a constellation where those who understand the game and know what not to publish, make careers.
So every now and then some stories emerge that should not have emerged.

One of them is this:  Bloomberg tells us that the big Banks have some interest privilige ( you mayconsider it  a Tax benefit)  which accounts for almost all of their profits. So in a way the tax-payer has to pay more taxers to compensate for this loss. Still we are keeping the banks alive, while these same banks treat us likes slaves:
From Bloomberg:

Why Should Taxpayers Give Big Banks $83 Billion a Year?

On television, in interviews and in meetings with investors, executives of the biggest U.S. banks -- notably JPMorgan Chase & Co. Chief Executive Jamie Dimon -- make the case that size is a competitive advantage. It helps them lower costs and vie for customers on an international scale. Limiting it, they warn, would impair profitability and weaken the country’s position in global finance.
So what if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?
Granted, it’s a hard concept to swallow. It’s also crucial to understanding why the big banks present such a threat to the global economy.
Let’s start with a bit of background. Banks have a powerful incentive to get big and unwieldy. The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail.
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers -- Kenichi Ueda of theInternational Monetary Fund and Beatrice Weder di Mauro of the University of Mainz -- put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.

Big Difference

Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.
The top five banks -- JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. - - account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits (see tables for data on individual banks). In other words, the banks occupying the commanding heights of the U.S. financial industry -- with almost $9 trillion in assets, more than half the size of the U.S. economy -- would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.
Neither bank executives nor shareholders have much incentive to change the situation. On the contrary, the financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy. The result is a bloated financial sector and recurring credit gluts. Left unchecked, the superbanks could ultimately require bailouts that exceed the government’s resources. Picture a meltdown in which the Treasury is helpless to step in as it did in 2008 and 2009.
Regulators can change the game by paring down the subsidy. One option is to make banks fund their activities with more equity from shareholders, a measure that would make them less likely to need bailouts (we recommend $1 of equity for each $5 of assets, far more than the 1-to-33 ratio that new global rules require). Another idea is to shock creditors out of complacency by making some of them take losses when banks run into trouble. A third is to prevent banks from using the subsidy to finance speculative trading, the aim of the Volcker rule in the U.S. and financial ring-fencing in the U.K.
Once shareholders fully recognized how poorly the biggest banks perform without government support, they would be motivated to demand better. This could entail anything from cutting pay packages to breaking down financial juggernauts into more manageable units. The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger.


One Senator , Elisabeth Warren , discussed the matter with Ben Bernanke: 
Original Huffington Post article with videos. .

Newly minted Sen. Elizabeth Warren on Tuesday showed why big banks are not her biggest fans, grilling Federal Reserve Chairman Ben Bernanke about the risks and fairness of having banks that are "too big to fail."
Warren (D-Mass.) questioned Bernanke during his latest semiannual appearance before the Senate Banking Committee to discuss the economy and monetary policy. Warren pressed the Fed chairman about whether the government would bail out the largest banks again, as it did during the financial crisis.
"We've now understood this problem for nearly five years," she said. "So when are we gonna get rid of 'too big to fail?'"
Warren also asked whether big banks should repay taxpayers for the billions of dollars they save in borrowing costs because of the credit market's belief that they won't be allowed to fail, repeatedly citing a recent Bloomberg View study estimating that the biggest banks essentially get a government subsidy of $83 billion a year, nearly matching their annual profits.
Though Bernanke questioned the accuracy of the $83 billion figure, he admitted that big banks get some subsidy. But he said the market was wrong to give banks any subsidy at all (in the form of lower borrowing costs), insisting that the government will in fact let banks fail. The 2010 Dodd-Frank financial reform law has given policymakers the tools to safely shut down big, failing banks, he claimed.
But when repeatedly pressed by Warren, Bernanke's confidence seemed to waver.
"The subsidy is coming because of market expectations that the government would bail out these firms if they failed," Bernanke said. "Those expectations are incorrect. We have an orderly liquidation authority. Even in the crisis, we -- uh, uh -- in the cases of AIG, for example, we wiped out the shareholders..."
"Excuse me, though, Mr. Chairman," Warren said. "You did not wipe out the shareholders of the largest financial institutions, did you, the big banks?
"Because we didn't have the tools," Bernanke replied. "Now we could -- now we have the tools."
Later, when pressed again by Warren, Bernanke suggested that the government's tools to wind down a big bank that is failing were still a work in progress -- or at least that financial markets have not yet been convinced of their power.
"Some of these rules take time to develop -- um, uh, the orderly liquidation authority, I think we've made progress on that," he said. "We've got the living wills -- I think we're moving in the right direction ... We do have a plan, and I think it's moving in the right direction."
"Any idea about when we're gonna arrive in the right direction?" Warren said.
"It's not a zero-one kind of thing," Bernanke stammered in response. "Over time we will see increasing, uh, increasing market expectations that these institutions can fail."
He later added, "As somebody who's spent a lot of late nights dealing with these problems, I would very much like to have confidence we can close down a large institution without causing damage to the economy."
Bernanke suggested that banks would eventually lose some of the benefits of size and would shrink themselves voluntarily -- news that might surprise JPMorgan Chase CEO Jamie Dimon, who was again extolling the benefits of his bank's size even as Bernanke spoke.

Warren also pointed out that big banks are probably loath to give up any market subsidy -- $83 billion or otherwise.
"Big banks are getting a terrific break, and little banks are just getting smashed," Warren said.
"I agree with you 100 percent," Bernanke said.

No comments:

Post a Comment