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Wednesday, 27 February 2013 10:23

Bloomberg: US Subsidy to Wall Street = the Amount of Sequester Cuts; It’s $83 Billion in 2013

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The first-ever analysis of the taxpayer-subsidy to the Wall Street mega-banks finds that this subsidy is $83 billion this year. This amount is only $2 billion less than this year’s sequester cuts are estimated to be.

That $83 billion subsidy this year is, according to Bloomberg’s, also approximately the amount of profits that those banks are “earning” this year.

The editors at Bloomberg News calculated this $83 billion figure on February 20th, headlining, “Why Should Taxpayers Give Big Banks $83 Billion a Year?” which was the value based upon their analysis of the figures in a widely ignored but rigorous study by IMF economists, a study that had been issued months back, in May 2012, and which was titled “Quantifying Structural Subsidy Values for Systemically Important Financial Institutions.” As Bloomberg’s editors summarized the reason for this ongoing federal subsidy: “The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail,” due to the special Government backing for too-big-to-fail (TBTF) institutions.

The taxpayer-funded annual subsidy to these TBTF banks has never before been calculated as to its actual annual dollar-value, but this rigorous IMF study finally provided the means for doing that. Bloomberg’s summarizes: “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?”

“The top five banks – JP Morgan, 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.”

This, in other words, is the current value of the annual subsidy received by America’s mega-banks, from our Government’s special treatment of them as “Systemically Important Financial Institutions” (i.e., fully guaranteed by U.S. taxpayers, irrespective of the normal $250,000-per-account limit in savings and checking accounts), or TBTF institutions, which the eight thousand smaller banks are not – other banks can fail without destroying the U.S. economy.

Because these banks are TBTF, their top executives can have them engage in, basically, high-risk gambling (such as “no-doc” or “liars” loans), because the people who buy stock in these banks know in advance that if these high risk bets fail, then U.S. taxpayers will eat the losses. Consequently, the only incentive for CEOs of these banks is to increase their bank’s size even more, so as to increase their bonuses even bigger, since these executives don’t really need to worry about risk (except as a PR issue, perhaps).

When Wall Street got bailed out to the tune of trillions of dollars by the U.S. Treasury, and the Federal Reserve (and with Fannie Mae, and Freddie Mac serving as a conduit between them and Wall Street), this left very little for the Government to spend on the rest of the economy, such as infrastructure and education, which might be why the recovery has been so slow, from the 2008 crash that was caused by Wall Street’s gambling with the trillions that they control. If so, then this sequester is a result of Wall Street’s failed bets: instead of cutting back on the subsidy to Wall Street, we are cutting back on government services to the public.

Bloomberg’s $83 billion/year finding here is so vast that it suggests that the U.S. might be a crony-capitalism, hardly an authentic capitalism. If so, then the cronies here are these giant Wall Street firms and their “counterparties” (namely, each other, plus Fannie & Freddie and the government officials who serve Wall Street), and also the stockholders and bondholders in these huge financial institutions, the mega-banks that would otherwise be “cleaned out” but for the TBTF backing they receive from U.S. taxpayers.

Because Wall Street’s Mayor Michael Bloomberg made his roughly $20 billion fortune by serving the mega-banks, this editorial from Bloomberg News constitutes remarkable news, in and of itself.


Investigative historian Eric Zuesse is the author, most recently, of They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.