Bloomberg: Why should taxpayers give $83 billion a year to big banks?

[Winehole23]

On television, in interviews and in meetings with investors, executives of the biggest U.S. banks -- notably JPMorgan Chase & Co. Chief Executive Jamie Dimon (http://topics.bloomberg.com/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?
Enlarge image http://www.bloomberg.com/image/ikVAEbN8Ayfc.jpg (http://www.bloomberg.com/photo/too-big-to-make-money-/294394.html)





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 (http://www.imf.org/external/pubs/ft/wp/2012/wp12128.pdf), two researchers -- Kenichi Ueda of the International Monetary Fund (http://topics.bloomberg.com/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 DifferenceSmall 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 (http://topics.bloomberg.com/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.

http://www.bloomberg.com/news/2013-02-20/why-should-taxpayers-give-big-banks-83-billion-a-year-.html

[boutons_deux]

Did somebody say "Dimon"?

Slimin’ Jamie Dimon’s Scheming to Stick the FDIC with WaMu Losses

The London Whale scandal, which was never going to rise to the level of bank-threatening losses, did reveal JP Morgan to have grossly deficient risk controls and Dimon to be arrogant, lackadaisical, and dishonest in dealing with the problem. Predictably, regulators have refused to acknowledge serious Sarbanes-Oxley violations. And Dimon, who loves to take personal responsibility for JP Morgan’s successes, rapidly threw members of his laxly-managed Chief Investment Office under the bus to salvage his reputation.


We’ll go into more details on JP Morgan’s WaMu machinations below. The very short version is this story came to the fore last year, when Deutsche Bank filed a putback suit against both JP Morgan and the FDIC for dud loans in 99 WaMu mortgage securitizations (recall that when a mortgage backed bond is found to have worse merchandise in it than than the investors were promised, the trustee is supposed to put the bad loans back to the originator and have them replaced with good loans or get cash compensation. The Deustche Bank suit was noteworthy because trustees normally do nothing). The FDIC has made a compelling case that WaMu is no longer its problem and JP Morgan assumed the relevant liabilities.

With the WaMu matter, we again have what looks to be a desperate attempt to delay loss recognition. It is hard to see how Slimin’ Dimon has a leg to stand on. Senator Levin, are you paying attention? The $6.2 billion in London Whale losses are similar in size to the range of likely losses that JP Morgan is trying to dump on the FDIC.


Now the background. Remember, JP Morgan bought WaMu from the FDIC in 2008 after the bank failed. The receivership wiped out the equity; the FDIC also, controversially, wiped out the subordinated debt as well (John Hempton has railed that this was unfair and unwarranted; Dimon’s desire to retrade the deal even with that concession should lead him to rethink that assessment).

http://www.nakedcapitalism.com/2013/02/slimin-jamie-dimon-scheming-to-stick-the-fdic-with-wamu-losses.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29

[boutons_deux]

taxpayers don't give $83B a year to big banks.

The financial sector buys Congresscritters to get $83B, to go along with the Big Banks owning and operating the private "independent" Federal Reserve to lend them $Ts at 0% AND unload their toxic, worthless shit on the Fed at $85B/month.

taxpayers simply are not in the loop, but they finance the loop totally.

[boutons_deux]

There's no way to stop the 1%, the financial sector, the United Corporations of America, from fucking hard and deep the 99%.

Just What Do Hedge Fund Honchos Do For a Million Bucks an Hour

while the top movie stars averaged about $21,000 per hour, (which is nothing to sneeze at), the top hedge fund guys averaged a whopping $843,000 per hour. It was a revelation.

How is it possible for a small firm like a hedge fund, with maybe 50 to 100 employees, to make as much money as a firm like Apple with more than a half-million employees and contractors worldwide?

hedge funds do not produce value that comes anywhere near to what they are hauling in. Instead, they are siphoning away our wealth.

They claim hedge funds dissipate risk throughout the economy; that hedge fund managers are the brave, bold entrepreneurs who are the only ones willing to take risky investments off the timid shoulders of those who don't want them. This not only helps cautious investors protect their portfolios, we are told, but it makes the entire economy safer.

Sounds great, doesn't it? Except it's not true. Just go back to the housing bubble. Rather than dissipating risk, hedge funds helped to increase and concentrate it. Rather than making the system more stable, they helped it explode. As I show in the book, step by painful step, hedge funds did all they could to build up, and then crash, the housing bubble so that they could do one thing, and one thing only -- extract enormous profits.

Josh, I really didn't expect to find what I ultimately discovered -- that hedge fund super-profits actually come from what the rest of America would call cheating.

Paulson himself is not suffering. He took in $4.9 billion in 2010 -- that comes out to about $2.4 million an hour. And with all that profit he created only 100 jobs?

Paulson seems to be blissfully unaware that study after study shows how marginal tax rates have little or no impact on where businesses and individuals locate. And he'll need to explain why Wall Street's casinos haven't already fled the higher taxes in New York for low-tax Las Vegas. Maybe it's because the casinos in Nevada are more regulated than those on Wall Street?

his role in the infamous Abacus deal which federal investigators said netted him a cool billion dollars. In that trade Paulson worked hand-in-glove with Goldman Sachs to build a financial security that was designed to fail, so that he could bet against it. It was precisely like designing and selling a car that would immediately crash so that the maker and seller could collect the insurance on it. Only in Paulson's world is that a permissible activity.

Well, not quite. Goldman Sachs paid a $550 million fine for misleading investors who lost $1 billion in that toxic deal. But due to the letter of security laws, Paulson got to keep his booty. So, before Paulson gets so high and mighty about all his wonderful contributions to the economy, maybe he could explain what value that shady deal produced for anyone other than himself.

came across various sources who claimed that hedge fund managers (and their cousins who work the proprietary trading desks inside large banks) put up $1 billion dollars to lobby against new financial regulations.

Here's a little story I came across that shows the incestuous relationships between the bailout process and hedge funds. In July 2008, it became clear that Fannie and Freddie were in trouble. Treasury Secretary Henry Paulson (no relation to John) goes public with the word that the government was confident that the two large government sponsored mortgage companies were sound. This signaled that stockholders would not be wiped out through a government takeover.

A few days later, Paulson, who formerly was CEO of Goldman Sachs, has a private meeting with his old banking and hedge fund buddies in New York City. He tells them privately the exact opposite of what he said publically -- that he's going to nationalize Fannie and Freddie, which would wipe out the value of its common stocks.

Well, lo and behold, short-selling of Fannie and Freddie immediately skyrocketed after the meeting. A few days later, Paulson made an about-face and nationalized Fannie and Freddie wiping out the value of its common stocks. Those who shorted the stock, whomever they were, made a lot of money. It's all documented in the book.

Hmm. You think maybe the big hedge funds and banks helped to shape the bailouts?

this book forced me to focus on another main impact -- the dramatic rise in CEO pay compared to average worker pay. In 1970, for every dollar the average worker earned, the top 100 CEOs paid themselves, on average, $40. That's a $40 to $1 ratio. By 2007 the ratio jumped to a whopping $1726 to $1. Nothing in free-market literature can explain that colossal increase -- not increases in skills, experience, new technologies, or new products.

Instead, I believe a large part of it has to do with hedge fund envy -- my new entry into Freudian financial literature. Imagine a CEO in a firm with 50,000 employees watching some 35-year-old hedge fund manager with 50 employees waltz off with $100 to $200 million a year in booty. Imagine how pissed off you'd be making only seven digits. (Yes, it is hard to imagine ever whining about making all that money because we're not animated by greed.)

I believe the enormous gap between financial sector pay and compensation in the rest of the economy motivated CEOs to press their boards for higher pay packages that were more in line with what they saw going to Wall Street's new elites. They all wanted in on the feast...ultimately at our expense.

If you're making a trade for your 401k for example, using something like E-Trade, there's a high-speed trader using automatic computer programs waiting out there for you. By the time you hit the "buy" button on your computer, that trader has bought the stock ahead of you and sold it back to you for a profit of a few pennies, which you will hardly notice. They picked your pocket. They do this again and again -- millions of times a minute. Overall, they are extracting from $5 to $20 billion a year from the rest of us -- from our pension funds, mutual funds and other retirement accounts. And in return they produce nothing of value at all.

In fact, from 50 to 80 percent of all trading on the stock market is the result of high-speed trading.

http://www.alternet.org/just-what-do-hedge-fund-honchos-do-million-bucks-hour?akid=10100.187590.Lt2-8a&rd=1&src=newsletter799132&t=9&paging=off

Any part of DC talking about a financial transaction tax? :lol

[Winehole23]

please stop shitting up my threads with your RSS feed.

comments are welcome; your links, otoh, fail to add much and often are irrelevant.

[boutons_deux]

Compare the TBTF banks lower borrowing rate with students who pay about 7% on their education loans because they have no collateral, and are "high risk", and cannot ever escape their education loans, even through bankruptcy (thanks to Repug/dubya regulations).

GSE F&F were also considered TBTF due to govt sponsoring, but they were "natonalized", as my "shitty" article above documents, wiping out common stock holders and allowing Paulson's tipped-off insiders to pocket $10Ms.

What collateral and (low) risk do the TBTF banks have to justify their lower borrowing rate? We know they are badly under capitalized, and fought like hell, successfully, any regs that increase their capital reserves.

[boutons_deux]

please stop shitting up my threads with your RSS feed.

comments are welcome; your links, otoh, fail to add much and often are irrelevant.

iyo

[Bobby Boucher]

Compare the TBTF banks lower borrowing rate with students who pay about 7% on their education loans because they have no collateral, and are "high risk", and cannot ever escape their education loans, even through bankruptcy (thanks to Repug/dubya regulations).

GSE F&F were also considered TBTF due to govt sponsoring, but they were "natonalized", as my "shitty" article above documents, wiping out common stock holders and allowing Paulson's tipped-off insiders to pocket $10Ms.

What collateral and (low) risk do the TBTF banks have to justify their lower borrowing rate? We know they are badly under capitalized, and fought like hell, successfully, any regs that increase their capital reserves.

You're such a fucking idiot, raising the reserve rate from 10% to whatever you propose would actually raise the same interest rates you're bitching about you stupid fuck. You know jack about shit just spamming repug repug barry bary guns over and over and over, go kill yourself and make the world a better place.

[boutons_deux]

You're such a fucking idiot, raising the reserve rate from 10% to whatever you propose would actually raise the same interest rates you're bitching about you stupid fuck. You know jack about shit just spamming repug repug barry bary guns over and over and over, go kill yourself and make the world a better place.

BB, you ignorant-fuck-who-believes-TBTF-propaganda, quit shitting in WH's immaculate threads with your shilling for the TBTF.

[Bobby Boucher]

I'm not advocating for the banks, just telling you why you don't know anything about how to fix it. You just bitch aimlessly and accomplish nothing.

[boutons_deux]

I'm not advocating for the banks, just telling you why you don't know anything about how to fix it. You just bitch aimlessly and accomplish nothing.

List YOUR accomplishments, fixes:

1.
2.
3.
...

My well-known position is that the entire finance sector is profoundly corrupt and destructive for the 99%.

Above all, there is no "fix" by me or anybody else, because no matter who gets voted in to state and federal govts (which are the ONLY orgs that have the power to regulate finance), they are corrupted by the finance sector (or other wealthy interests), if they were not already financed as candidates as by the wealthy interests.

America is fucked and unfuckable, just like yourself.

[Latarian Milton]

why give $83 taxpayer money to big banks every year? because you can't afford to let them fall. bankers fucking own this world and if the banks go bankrupt themselves, you're gonna lose all the money you've deposited in them banks which would be disastrous.

[whitemamba]

why give $83 taxpayer money to big banks every year? because you can't afford to let them fall. bankers fucking own this world and if the banks go bankrupt themselves, you're gonna lose all the money you've deposited in them banks which would be disastrous.


where does the constitution authorize taking money from unconstitutional taxes to pay for banks?:nope