No, The Big Banks Have Not "Paid Back" Government Bailouts and Subsidies

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The big banks claim that they have paid back all of the bailout money
they received, and that the taxpayers have actually made money on the

However, as Barry Ritholtz notes:

Pro Publica has been maintaining a list of bailout recipients, updating the amount lent versus what was repaid.


far, 938 Recipients have had $607,822,512,238 dollars committed to
them, with $553,918,968,267 disbursed. Of that $554b disbursed, less
than half — $220,782,546,084 — has been returned.


Whenever you
hear pronunciations of how much money the TARP is making, check back
and look at this list. It shows the TARP is deeply underwater.

Moreover, as I pointed out in May, the big banks have received enormous windfall profits from guaranteed spreads on interest rates:

Bloomberg notes:

The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks, said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”


trading results, which helped the banks report higher quarterly
profit than analysts estimated even as unemployment stagnated at a
27-year high, came with a big assist from the Federal Reserve. The U.S.
central bank helped lenders by holding short-term borrowing costs
near zero, giving them a chance to profit by carrying even 10-year
government notes that yielded an average of 3.70 percent last quarter.


gap between short-term interest rates, such as what banks may pay to
borrow in interbank markets or on savings accounts, and longer-term
rates, known as the yield curve, has been at record levels. The
difference between yields on 2- and 10-year Treasuries yesterday
touched 2.71 percentage points, near the all-time high of 2.94
percentage points set Feb. 18.

Harry Blodget explains:

latest quarterly reports from the big Wall Street banks revealed a
startling fact: None of the big four banks had a single day in the
quarter in which they lost money trading.


For the 63 straight
trading days in Q1, in other words, Goldman Sachs (GS), JP Morgan
(JPM), Bank of America (BAC), and Citigroup (C) made money trading for
their own accounts.


Trading, of course, is supposed to be a
risky business: You win some, you lose some. That's how traders
justify their gargantuan bonuses--their jobs are so risky that they
deserve to be paid millions for protecting their firms' precious
capital. (Of course, the only thing that happens if traders fail to
protect that capital is that taxpayers bail out the bank and the
traders are paid huge "retention" bonuses to prevent them from leaving
to trade somewhere else, but that's a different story).


But these days, trading isn't risky at all. In fact, it's safer than walking down the street.




the US government is lending money to the big banks at near-zero
interest rates. And the banks are then turning around and lending that
money back to the US government at 3%-4% interest rates, making 3%+
on the spread. What's more, the banks are leveraging this trade,
borrowing at least $10 for every $1 of equity capital they have, to
increase the size of their bets. Which means the banks can turn
relatively small amounts of equity into huge profits--by borrowing from
the taxpayer and then lending back to the taxpayer.


government's zero-interest-rate policy, in other words, is the
biggest Wall Street subsidy yet. So far, it has done little to increase
the supply of credit in the real economy. But it has hosed
responsible people who lived within their means and are now earning
next-to-nothing on their savings. It has also allowed the big Wall
Street banks to print money to offset all the dumb bets that brought
the financial system to the brink of collapse two years ago. And it
has fattened Wall Street bonus pools to record levels again.

Paul Abrams chimes in:

get a clear picture of what is going on here, ignore the intermediate
steps (borrowing money from the fed, investing in Treasuries), as
they are riskless, and it immediately becomes clear that this is
merely a direct payment from the Fed to the banking executives...for
nothing. No nifty new tech product has been created. No illness has
been treated. No teacher has figured out how to get a third-grader to
understand fractions. No singer's voice has entertained a packed
stadium. No batter has hit a walk-off double. No "risk"has even been
"managed", the current mantra for what big banks do that is so
goddamned important that it is doing "god's work".


Nor has any
credit been extended to allow the real value-producers to meet
payroll, to reserve a stadium, to purchase capital equipment, to hire
employees. Nothing.


Congress should put an immediate halt to
this practice. Banks should have to show that the money they are
borrowing from the Fed is to provide credit to businesses, or
consumers, or homeowners. Not a penny should be allowed to be used to
purchase Treasuries. Otherwise, the Fed window should be slammed
shut on their manicured fingers.


And, stiff criminal
penalties should be enacted for those banks that mislead the Fed about
the destination of the money they are borrowing. Bernie Madoff needs

There is another type of guaranteed spread that allows the giant banks to make money hand over fist. Specifically, the Fed pays the
big banks interest to borrow money at no interest and then keep money
parked at the Fed itself. (The Fed is intentionally doing this for
the express purpose of preventing too much money from being lent out to Main Street.)

The newly-released Fed data shows that the Fed also threw money at many of the big banks at ridiculously low interest rates.

And as I also pointed out, the government gave tax subsidies to the too big to fails:

The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws
which rewards mergers in the banking industry (this has caused a lot
of companies to bite off more than they can chew, destabilizing the
acquiring companies).

Indeed, the Wall Street Journal noted this week:

series of tax relief measures is saving companies bailed out by the
government billions of dollars at a time when concern over tax revenues
has risen.

Although the Treasury Department first provided the tax
guidance in the fall of 2008, the magnitude of the tax savings has
become clearer in the past year ....

"The agencies are literally
throwing gratuities at banks and other companies," said Christopher
Whalen, a bank stock analyst at Institutional Risk Analytics.

And as I've previously reported:


Too Big As Subsidy


The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws
which rewards mergers in the banking industry (this has caused a lot
of companies to bite off more than they can chew, destabilizing the
acquiring companies)




The fact that the giant banks are "too big to fail" encourages them to take huge, risky gambles that they would not otherwise take. If they win, they make big bucks. If they lose, they know the government will just bail them out. This is a gambling subsidy.


very size of the too big to fails also decreases the ability of the
smaller banks to compete. And - since the government itself helped make
the giants even bigger - that is also a subsidy to the big boys (see this).


The monopoly power given to the big banks (technically an "oligopoly") is a subsidy in other ways as well. For example, Nobel prize winning economist Joseph Stiglitz said in

September that giants like Goldman are using their size to manipulate the market:

main problem that Goldman raises is a question of size: 'too big to
fail.' In some markets, they have a significant fraction of trades. Why
is that important? They trade both on their proprietary desk and on
behalf of customers. When you do that and you have a significant
fraction of all trades, you have a lot of information."

he says, "That raises the potential of conflicts of interest, problems
of front-running, using that inside information for your proprietary
desk. And that's why the Volcker report came out and said that we need
to restrict the kinds of activity that these large institutions have.
If you're going to trade on behalf of others, if you're going to be a
commercial bank, you can't engage in certain kinds of risk-taking

The giants (especially Goldman Sachs) have also used high-frequency program trading which not only distorted the markets
- making up more than 70% of stock trades - but which also let the
program trading giants take a sneak peak at what the real (aka “human”)
traders are buying and selling, and then trade on the insider
information. See this, this, this, this and this. (This is frontrunning,
which is illegal; but it is a lot bigger than garden variety
frontrunning, because the program traders are not only trading based on
inside knowledge of what their own clients are doing, they are also
trading based on knowledge of what all other traders are doing).


Goldman also admitted
that its proprietary trading program can "manipulate the markets in
unfair ways". The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with the government's blessings.


In addition, the giants receive many billions in subsidies
by receiving government guarantees that they are "too big to fail",
ensuring that they have to pay lower interest rates to attract




The government's failure to
rein in derivatives or break up the giant banks also constitute
enormous subsidies, as it allows the giants to make huge sums by
keeping the true price points of their derivatives secret. See this and this.


Toxic Assets


The PPIP program - which was supposed to reduce the toxic assets held by banks - actually increased them, and just let the banks make a quick buck.


addition, the government suspended mark-to-market valuation of the
toxic assets held by the giant banks, and is allowing the banks to value
the assets at whatever price they desire. This constitutes a huge
giveaway to the big banks.


As one writer notes:

allowing banks to legally disregard mark-to-market accounting rules,
government allows banks to maintain investment grade ratings.

maintaining investment grade ratings, banks attract institutional
funds. That would be the insurance and pension funds money that is
contributed by the citizen.


As institutional money pours in, the stock price is propped up ....

Mortgages and Housing


PhD economists John Hussman and Dean Baker
(and fund manager and financial writer Barry Ritholtz) say that the
only reason the government keeps giving billions to Fannie and
Freddie is that it is really a huge, ongoing, back-door bailout of the
big banks.


Many also accuse Obama's foreclosure relief programs as being backdoor bailouts for the banks. (See this, this and this).


Foreign Bailouts


The big banks - such as JP Morgan
- also benefit from foreign bailouts, such as the European bailout,
as they are some of the largest creditors of the bailed out countries,
and the bailouts allow them to get paid in full, instead of having to
write down their foreign losses.

When all
of the different bailouts and subsidies given to the big banks are added
up, it is obvious that they have not come anywhere close to "paying
back" what we gave to them.