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America's TBTF Bank Subsidy From Taxpayers: $83 Billion Per Year

Tyler Durden's picture





 

Day after day, whenever anyone challenges the TBTF banks' scale, they are slammed down with a mutually assured destruction message that limitations would impair profitability and weaken the country's position in global finance. So what if you were to discover, based on Bloomberg's calculations, that the largest 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? The stunning truth is that the top-five banks account for $64 billion of an implicit subsidy based on the ludicrous (but entirely real) logic that: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail. Perhaps this realization will increase shareholder demands - or even political furore? The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger.

 


Via Bloomberg,

... the biggest U.S. banks ... 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.

 

...

 

What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?

 

...

 

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 the International 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. 

 

...

 

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. 

 


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Wed, 02/20/2013 - 22:54 | Link to Comment fonzannoon
fonzannoon's picture

this time around it's going to be an insurance company. they are scrambling to buy pensions and other assets to get as big as possible so when the time comes they can hold the gun to their heads and scream that they will blow their head off and take everyone with them.

Wed, 02/20/2013 - 22:56 | Link to Comment Dr Benway
Dr Benway's picture

The Blazing Saddles gambit, eh?

Wed, 02/20/2013 - 23:02 | Link to Comment DJ Happy Ending
DJ Happy Ending's picture

Yes, white women and all.

Thu, 02/21/2013 - 07:11 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

The sheriff is what?

 

No way in hell I'm going to believe that dark complected guy is a marxist.

Wed, 02/20/2013 - 23:16 | Link to Comment AlaricBalth
Thu, 02/21/2013 - 00:17 | Link to Comment Squid-puppets a...
Squid-puppets a-go-go's picture

what makes their performance so laughable is that this is the mob who borrow from the Fed at 0.5%, lend it back to the US as bonds earning 2,3,4% - and EVEN THEN THEY CANT MAKE A PROFIT without other govt subsidies.

Epic fiscal failures

Thu, 02/21/2013 - 00:35 | Link to Comment greyghost
greyghost's picture

now what the hell was i saying earlier.....oh yea....something about bankers taking the butter fat, cream and now the 2% milk. and to think i just got hammered with the down arrow votes. a few post later and the zero hedge boys step with the answer. for those fucktards too ignorant or stupid to see or listen i will repeat.....it is not the person who lives next door...it is not your parents....it is not even your grandparents fault. no...it is a banking system stealing not only this country blind, but europe also. these people know no bounds, have no compassion for anyone and remorse is not in their dick/tionary. and why is it on the red and blue map that the poorest states are "red"...hmmm

yea squid so true...free money and they still aren't even trying to straighten themselves out. i figure they are just sucking the whole system dry for their own personal gain...to hell with everyone else.

Thu, 02/21/2013 - 02:49 | Link to Comment fourchan
fourchan's picture

we pay them to enslave us, the feds "system" is working perfectly.

Thu, 02/21/2013 - 11:50 | Link to Comment DaveyJones
DaveyJones's picture

psychology really - fat and lazy, all incentive destroyed by corruption

what's that? when do the prosecutions start? 

wait, another building's gone down

Wed, 02/20/2013 - 23:17 | Link to Comment gwar5
gwar5's picture

...and they'll be bailed ou t with a priva te pension grab, ala Argenzuela. Because even the Latin crazies know there is no such thing as a trillion dollar banana. 



Thu, 02/21/2013 - 09:03 | Link to Comment max2205
max2205's picture

That's the money they dont have to pay savers. Crime

 

Ben watch out for grey haired people when the time comes

Wed, 02/20/2013 - 22:56 | Link to Comment IridiumRebel
IridiumRebel's picture

That's it? Fuck. Bernanke shoots monetary jizz of 85 Bil per month.....That ain't shit. wake me at a trillion.....

 

 

 

 

 

...probably by May.....

Wed, 02/20/2013 - 23:07 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

This is very O/T, but I suspect the Tylers won't mind as we just bought something from one of their advertisers...  A couple of weeks (or so) ago, I say an ad by flashbay.com, a maker of promotional (give-away) flash drives.  We ordered 100 of them to give to our customers in Peru.

Well, they came out beautifully!  And there is NO WAY that all 100 are going to make it to Peru!

I did not order directly through the ad, so I do not know if ZH got any revenue (although I clicked the ad to start).  Take a look at the drives with our logo, etc. on them as well as how much it costs us, and so on:

http://tinyurl.com/av9xkrq

Wed, 02/20/2013 - 23:08 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

<--- Upon re-visiting, there they are!  flashbay.com!  Amazing!

Wed, 02/20/2013 - 23:01 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

'Regulators can change the game by paring down the subsidy.'

Who are these "regulators" Bloomberg speaks of and what is their function? 

<I wish these damn news repeaters would speak the King's English. You know....Fedspeak.>

Thu, 02/21/2013 - 02:45 | Link to Comment hidingfromhelis
hidingfromhelis's picture

Their function is to generate page hits for the porn industry.  Mission accomplished!

The whole idea that, "Regulators can change the game by paring down the subsidy." is absurd.  Would those be the regulators that are selected by the legislators who are selected by the TBTF banks?  None of them have ever met a conflist of interest they wouldn't go down on.

Thu, 02/21/2013 - 11:54 | Link to Comment DaveyJones
DaveyJones's picture

a lot like the FDA regulating Monsanto

We are ALL fed poisonous, deadly bullshit

Wed, 02/20/2013 - 23:05 | Link to Comment tickhound
tickhound's picture

As if the us consumer gives a shit about this.  They don't even understand it.  They can't even scale it to anything.

Besides...

"Neither bank executives nor shareholders have much incentive to change the situation"

Nothing else matters until they don't matter.

 

Wed, 02/20/2013 - 23:08 | Link to Comment LetThemEatRand
LetThemEatRand's picture

The problem is teacher and firefighter salaries/pensions.   And too many regulations on banks.   Nothing to see here.  Move along.

Wed, 02/20/2013 - 23:09 | Link to Comment fonzannoon
fonzannoon's picture

the problem is the lack of beheadings of bankers and union heads.

Wed, 02/20/2013 - 23:16 | Link to Comment SuccorMoney
SuccorMoney's picture

I didn't realize banks were unionized.

Thu, 02/21/2013 - 00:00 | Link to Comment TheFourthStooge-ing
TheFourthStooge-ing's picture

.

I didn't realize banks were unionized.

It's actually more of a crime guild.

Thu, 02/21/2013 - 11:58 | Link to Comment DaveyJones
DaveyJones's picture

What's that old Gilda SNL routine? "It's not a gang, it's a club!" 

Sweet Gilda

another line that always pops in my head on this site:

"those fish are all swimming around in their own toilet!"

Thu, 02/21/2013 - 00:57 | Link to Comment rehypothecator
rehypothecator's picture

If Buckaroo Banzai has anything to do with it, they'll all be ionized soon.  (But then they won't be fine.)  

Wed, 02/20/2013 - 23:38 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+ 1 fonzanoon

Wed, 02/20/2013 - 23:25 | Link to Comment otto skorzeny
otto skorzeny's picture

LTERand-more of your usual socialist garbage? and yes-the asshole union techers and asshole union firefighters and the TBTF banks are all part of the same corrupt system-the only innocents are the children. as J. Morrison said -"No one here gets out alive"

Thu, 02/21/2013 - 13:05 | Link to Comment waterhorse
waterhorse's picture

lol - straight out of the "Americans for Prosperity" playbook.

Wed, 02/20/2013 - 23:09 | Link to Comment tony bonn
tony bonn's picture

this insight shows 2 thing - 1. there is a point beyond which economies of scale become negative 2. these meatball managers are not too bright...which  is why they resort to criminal and bullying methods to survive....this america's best and brightest b-school crop - smells like wilting green shoots with a large serving of goat shit...

Wed, 02/20/2013 - 23:10 | Link to Comment gwar5
gwar5's picture

ZH recent ar ticle on  the banks propping up CA housing made me reallize it is also propping up CA.

 

House prices stay higher and so do property taxes for those who still pay, while the non-paying underwater squatters get to spend their paychecks racking up sales taxes and pay their income taxes unbuffered without any mortgage interest deduction. Gov Moonbeam Like!


Wed, 02/20/2013 - 23:10 | Link to Comment venturen
venturen's picture

But Oh the Bonuses. These banks aren't run for shareholders. They are run for the executives and those who can pile on the most risk and earn 7 digits while having ZERO risk for themselves. All those that ran Lehman and Bear into the ground and now just working somewhere else...attempting to perform the same feat. And this time they will know to pull all their money out. These are subsidized cartels! 

Wed, 02/20/2013 - 23:11 | Link to Comment Carbon Penguin
Carbon Penguin's picture

All power to the credit unions!

Wed, 02/20/2013 - 23:12 | Link to Comment venturen
venturen's picture

Name an powerful Washington player that hasn't take money from the TBTF cartel. Every democrat now passes through these money machines....Corzine, Lew, Ortzag....etc

Wed, 02/20/2013 - 23:14 | Link to Comment davidsmith
davidsmith's picture

"The market discipline might not please executives, but it would certainly be an improvement over paying banks to put us in danger."

 

Poor ZH, when the going gets tough, they retreat to that fantasy called "the market."  What's next, invoking the tooth fairy?  Sad.

Thu, 02/21/2013 - 02:37 | Link to Comment fuu
fuu's picture

Actually Bloomberg said it, ZH just bolded the font.

Wed, 02/20/2013 - 23:15 | Link to Comment SuccorMoney
SuccorMoney's picture

If TBTF banks pay lower rates because of the assumption that they're backed by the Full Faith and Credit of the US Government, may as well nationalize them, make it explicit, and save money in the process.

Wed, 02/20/2013 - 23:28 | Link to Comment climber
climber's picture

what the fucking fuck

Wed, 02/20/2013 - 23:39 | Link to Comment Water Is Wet
Water Is Wet's picture

dafuq?

Thu, 02/21/2013 - 02:28 | Link to Comment CaptainSpaulding
CaptainSpaulding's picture

Fuck the fucking fucker

-George Carlin

http://www.youtube.com/watch?v=xZkb4TPI-Lo


Thu, 02/21/2013 - 02:56 | Link to Comment hidingfromhelis
hidingfromhelis's picture

Reminds me of Tim Minchin's lovely little tune about someone else quite deserving of that sentiment.

http://www.youtube.com/watch?v=rTIorwtJbhE

Wed, 02/20/2013 - 23:42 | Link to Comment Atomizer
Atomizer's picture

 

 

Good evening gang. Just went to No Best Buy’s to purchase a new test laptop utilizing Windoz 8. This software reminds me of the ME & Vista abortion.  The user interface is controlled by the software, not the user. After contributing to setting up a mandatory MS email account, stripping down all the bullshit APPS. The computer OS was no easier than trying to herd Central Planners/ Special Interests groups into a large gated animal pin.

 

I will keep this computer and use my Windows 7 seats to downgrade the clusterfuck tampon rag they call an operating system. During the setup, I was required to create an msn email, if you ever need to reach me.. win8suxs@hotmail.com

 

/Rant off

 

Someone must of subsidized this vomit invoked, road rage induced software. Bet the slaves fronted the monies..

Wed, 02/20/2013 - 23:46 | Link to Comment Meatballs
Meatballs's picture

XP works just fine. All MS keeps doing is dumbing it down to keep up with the general population.

Thu, 02/21/2013 - 00:22 | Link to Comment miamizsun
miamizsun's picture

it's got electrolytes

Thu, 02/21/2013 - 01:27 | Link to Comment seek
seek's picture

And linux isn't half bad these days either. And if you don't mind sharing your work with NSA/CIA/FBI, ChromeOS as well.

Thu, 02/21/2013 - 02:21 | Link to Comment CaptainSpaulding
CaptainSpaulding's picture

Try windows 7 pro full version and do a clean install. No issues here. It purrs like a kitten.

Thu, 02/21/2013 - 00:27 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

@ Atomizer

YES, that really sucks.  About all that any of us really wants is just a computer to work right, run the programs we need and want and not harass us re mandatory this, updates that.

Oh, but I hate Apple machines too.  And am not very good at computers, so LINUX, etc. is out.

Yeesh.  But, I like yr meail address!  Fighting the system!

Thu, 02/21/2013 - 03:46 | Link to Comment Haager
Haager's picture

"Oh, but I hate Apple machines too. And am not very good at computers, so LINUX, etc. is out."

Ever tried Linux-Mint? It's usually more easy to setup than Windows7 clean install. Just try it, and hug me later on.

Wed, 02/20/2013 - 23:49 | Link to Comment Bob Sacamano
Bob Sacamano's picture

Not a big fan of the banks, but while I can buy the 80bps of savings on the liabilities, I do not believe the same is true for deposits.  And the IMF does not seem to be the go to organization for financial wisdom.

Best solution is a meaningful increase (double?) in equity capital requirements for all banks if they want government guarantee on deposits. 

Thu, 02/21/2013 - 00:06 | Link to Comment Clowns on Acid
Clowns on Acid's picture

The BBG article completely understates the subsidy to the banks.
One must also include the $85B per month that the Fed has spent (taxpayer $) buying @ mark to model prices, securitized crap, effectively taking in some cases worthless paper off of the banks balance sheets.
Not to worry the pay packages at the major banks for the traders of MBS and securitized crap is still in the 1MM to $10MM range depending on their senoriage.
No claw backs from the ex Lehman or ex Bear traders thriving in the slop.

Thu, 02/21/2013 - 00:22 | Link to Comment Atomizer
Atomizer's picture

Banks are funding NASAQ mooncrickets, by blowing winds in an empty parachute jumper to create new bubbles.

Thu, 02/21/2013 - 00:23 | Link to Comment MoneyThangs
MoneyThangs's picture

Someone please make this selling stop? This is 2008 all over again, hopefully we have bottomed out today

Thu, 02/21/2013 - 00:25 | Link to Comment Michelle
Michelle's picture

Anybody stop and think about the elitist welfare beyond just the blatant handouts to TBTF?

Foodstamps come to mind - companies pay their people diddly squat, cut their hours or worse yet, layoffs, etc. all for what? So these same people fall below the poverty line making them eligible for foodstamps and other low income programs, all so that these companies can earn higher profits. Who are the direct beneficiaries of these profits? Yup, the elistists.

TBTF bailouts are just scratching the surface.

 

Thu, 02/21/2013 - 00:25 | Link to Comment Bunga Bunga
Bunga Bunga's picture

But but but the taxpayer makes so much profits from the bailouts.

Thu, 02/21/2013 - 00:44 | Link to Comment Uber Vandal
Uber Vandal's picture

And to think, a few posts down, the topic was how minting one cent and five cent coins was costing tax payers money......

http://www.zerohedge.com/news/2013-02-20/kyle-bass-trade-and-how-penny-c...

In those seven years, the US taxpayer has lost a stunning $436 million thanks to the inflationary devaluation of the USD relative to the metals involved

Why, we can fund minting these coins for DECADES before we even touch a single year of this.

Thu, 02/21/2013 - 01:55 | Link to Comment MoneyThangs
MoneyThangs's picture

The only way us normal peasants can become TBTF is to eat 10 burgers and smoking 2 packs of marb reds - once you become over 300 lbs the state is required to take care of you and pay all expenses.. Hehe beat the bankstas at their own game :)

Thu, 02/21/2013 - 01:43 | Link to Comment icanhasbailout
icanhasbailout's picture

Funny how similar the amount of subsidy is to the amount the crooks pull out in bonuses each year.

Thu, 02/21/2013 - 02:41 | Link to Comment fuu
fuu's picture

If Ben is buying $85 billion a month in MBS and doing the POMO how is the total subsidy only $83 billion a year? Bloomberg would appear to be off by at least an order of magnitude.

Thu, 02/21/2013 - 02:51 | Link to Comment ebworthen
ebworthen's picture

The "Sequester" is supposedly $85 Billion.

That is ONE MONTH of FED purchase of Mortgage Backed Securities (MBS's) that benefits the banks/bankers!!!  ONE MONTH but suddenly it is Armageddon.  What about the bailouts and QE ad infinitum that benefits the bankers and Wall Street!?!?!?

Hello!?!?!?  Does anyone have a fucking brain and a calcualtor!?!?!  The debt is already unpayable!!!

So who the fuck is this Ponzi government fooling!?!?!  Who in their right mind believes any of this!?!?!?!

Of course the banks are being completely subsidized by the taxpayer!!!

Our society is a complete and total kleptocrat/plutocrat PONZI!!!  Welcome to the kleptoligarchy!!!

Most Americans are picking cotton and being whipped into submission; right there in their own homes as they cash out savings, retirement, 401K's, IRA's, go more into debt, go bankrupt to stay alive with "health"care (sick care), or use a Chase bank EBT and Welfare/Unemployment account with requisite crony capitalism fees and charges removed to shop at WallMart Street to keep the kleptoligarch's in power and enriched.

INSANITY!!!

PONZI!!!

Thu, 02/21/2013 - 02:49 | Link to Comment q99x2
q99x2's picture

This year the IRS will pass laws so no one has to pay taxes. They couldn't care less. The US financial system isn't really connected to taxes and it no longer depends on them.

Thu, 02/21/2013 - 03:04 | Link to Comment Caggge
Caggge's picture

... the biggest U.S. banks ... 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.

 

The biggest U.S. banks...make the case that having a monopoly is a competitive advantage. It helps them lower costs aka LESS JOBS and allows them to vie for customers on an international scale that they can inside trade with. Limiting insider trading and the subsidies would impair their profitability and force them to compete in a capitalistic environment where they had to manage their business effectively or go out of business.

Thu, 02/21/2013 - 03:20 | Link to Comment pitz
pitz's picture

The H-1B  program is another giant subsidy for the banks from the US government, as it reduces their IT costs dramatically.  That's got to be worth at least a few billion dollars every years for the banks who employ hoardes of Indians in their IT departments, rather than Americans who ostensibly would cost more. 

Thu, 02/21/2013 - 04:10 | Link to Comment ebworthen
ebworthen's picture

Of course, along with all the Chinese spies in graduate programs at State Universities and Colleges, not to mention the hordes of illegal Latin American immigrants providing slave labor for big Ag. operations, maids, landscapers, construction, and of course the church pews.

Thu, 02/21/2013 - 08:28 | Link to Comment Downtoolong
Downtoolong's picture

You see Lenny, it works like this. We bankers make a ton of money screwing up the financial system and the rest of the economy. Then we get to make even more money pretending like we are fixing the mess we made. It's so simple even you can understand it, as long as you never get a PhD in economics.

Thu, 02/21/2013 - 08:42 | Link to Comment michigan independant
Thu, 02/21/2013 - 09:30 | Link to Comment Forbes
Forbes's picture

Um. no kidding. It's called fractional reserve banking.  It's government-controlled oligopoly that virtually guarantees profits. The key is to get the speculative investment banks out of the access-to-the fed-window game, in order that their liability structure is funded with a market-driven risk premia, not backstopped by taxpayers.

Banks with Fed open-window access and FDIC-insured deposits should be in the business of extending self-liquidating credit and middleman fee transactions, with asset-liability matching balance sheet, not speculation on market direction of security/asset prices.

Safety and soundness means banks should be in the business of extending credit to security dealers, not in the business as a security dealer.

Politicians like the campaign funds gravy train, so this is unlikely to change.

Thu, 02/21/2013 - 10:04 | Link to Comment Gold Dog
Gold Dog's picture

FUCK YOU BERNANKE!!

Thu, 02/21/2013 - 10:18 | Link to Comment Jim B
Jim B's picture

+1,000,000

Stolen from savers and given to banksters!  

 

Buy physical silver! 

Thu, 02/21/2013 - 10:39 | Link to Comment yogibear
yogibear's picture

Get ready for another series of surprise Fed bailouts.  Time to shear the sheep again.

Thu, 02/21/2013 - 13:00 | Link to Comment waterhorse
waterhorse's picture

I made a comment on Moynihan's undeserved 73% raise story and got called "jealous" by another commenter and told all I had to do was go to school and I too could be Moynihan.  When I mentioned that B of A is a corporate welfare queen and there was no jealousy involved, but outrage that taxpayers are propping up an insolvent institution, the poster got quite angry and told me I was lying, B of A is healthy and I was just trying to besmirch Moynihan's "good name".

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