Bank ‘Profits’
February 22nd, 2013Via: Bloomberg:
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?
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.
While I generally agree with the concept and opinion of the article, I think the authors are spinning it a bit for their own sordid reasons.
Especially the title, which is worded for shock value and pageviews. While I understand what they’re saying a lot of people are going to see that and assume the government is literally handing $83 billion dollars to banks.
What’s actually happening is that the government is giving large banks a safety net, in terms of TBTF-style bailouts, that makes them appear to be a safe option for creditors, which allows them to borrow at a lower rate. They calculate that amount to $83 billion.
While I don’t want to diminish their theory completely, I do wonder who exactly are these creditors that lend to large banks?? I would think it’s mostly sovereign wealth funds (i.e. china), Central banks (i.e. the Fed/ECB) and other large banks. If there wasn’t a theoretical safety net, there’s a good chance that this circlejerk of wealth would still give lower rates to basically itself. Perhaps not as much as 0.8% as the authors contend. But still something.
And while I don’t doubt the banks would be bailed-out again, they make it a foregone conclusion and continually reference to it as a ‘taxpayer’ subsidy as though there’s direct taxpayer money being funnelled into the banks each year. Makes the whole piece feel cheap and attempting to evoke a fear/anger response from readers.
Besides how about they do some research about the billions from the ‘private’ government-backed monopoly known as the Fed that propped up the entire market during the crash, which continuously funnels wealth from devaluing the Dollar into the pockets of all the big Wall Street players (not just banks). Is that subsidy too big for you to take on Bloomberg? Or perhaps that’s where your owner made his money in the first place… better not talk about that.
Though it is interesting to see Bloomberg attacking the Banks. The Big Dogs are showing their fangs to each other. Let the propaganda war begin!