Why Should Taxpayers Give Big Banks $83 Billion a Year? - Corvette Forum : DigitalCorvettes.com Corvette Forums
 
 
Go Back   Corvette Forum : DigitalCorvettes.com Corvette Forums > Other Discussions/Topics > News Room
Register Forums Garage Garage Mark Forums Read Auto EscrowInsurance

Notices

News Room This section is for discussing current events.

Shops/Tuners
Custom Image Corvettes
A&A Corvette
Corvette tuner

Interior
Corvette aftermarket products

Insurance

Parts & Products
Race Ramps
Edelbrock
ATI/Procharger
Corvetteguys.com
Melrose Motorsports
Parts Taxi
Airaid
Mid America Motorworks
Pfadt Racing
Madvette Motorsports
Hi-tech Custom Concepts
Corvette aftermarket products
Corvette Garage
Corvette Parts and Accessories
Corvette Car Care Products
Corvette HID
Mid America Motoroworks

Tracks/Schools
Bob Bondurant School of High Performance Driving
Corvette driving school

Wheels/Tires
Cray Wheels

Services
BADWERKS.com
Reply
 
Thread Tools
Old 02-26-2013, 03:00 PM   #1
Vette_Newb
Account Disabled.
 
Vette_Newb's Avatar
 
Posts: 26,797
Member #6180
Member since: Dec 2003
Location: In The Sticks

My Corvette(s)
1989 L98 Coupe

Thanks: 467
Thanked 444 Times in 346 Posts
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 countryís position in global finance.

So what if we told you that, by our calculations, the largest U.S. banks arenít 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, itís a hard concept to swallow. Itís also crucial to understanding why the big banks present such a threat to the global economy.

Letís 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 banksí 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, itís 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 governmentís 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.

http://www.bloomberg.com/news/2013-0...n-a-year-.html
Vette_Newb is offline   Reply w/quote Quick reply to this message
"When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal, not in goods, but in favors; when you see that men get richer by graft and by pull than by work, and your laws donít protect you against them, but protect them against you; when you see corruption being rewarded and honesty becoming a self-sacrifice; you may know that your society is doomed." Ė Ayn Rand
Sponsored Links
Advertisement
 
Reply

Quick Reply
Message:
Options

Register Now

In order to be able to post messages on the Corvette Forum : DigitalCorvettes.com Corvette Forums forums, you must first register.
Please enter your desired user name (12 CHARACTERS MAXIMUM), your email address and other required details in the form below.
User Name:
Password
Please enter a password for your user account. Note that passwords are case-sensitive.
Password:
Confirm Password:
Email Address
Please enter a valid email address for yourself.
Email Address:

Log-in

Human Verification

In order to verify that you are a human and not a spam bot, please enter the answer into the following box below based on the instructions contained in the graphic.



Thread Tools

Posting Rules
You may post new threads
You may post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off

Forum Jump

Powered by vBadvanced CMPS v3.2.2

All times are GMT -6. The time now is 01:19 PM.




Powered by vBulletin® Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.
Garage Plus vBulletin Plugins by Drive Thru Online, Inc.
© 2003-2011, DigitalCorvettes.com - All Rights Reserved