Top Banking Analyst: Subsidies to Giant Banks Exceed $780 Billion Dollars Per YEAR

See my comment to this article. To a strong degree this supposed analyst doesn't understand rentier economics at all. My contention is that the situation is much worse relative to the net effects of the privatization of the economics, not just of the economy, not better, the strategic advantage alone to determine who gets debt based capital and who doesn't is extreme. The breathless nature of this article and the numerous hyper-links absent much direct analysis is irritating even if the implied analysis is correct.A lot of the implications are also old news, imo, which makes it juvenile as well. Admin

Posted on March 13, 2013 by WashingtonsBlog

Trillions In Subsidies to the Giant Banks Are Continuing to This Day

Chris Whalen is one of America's top banking analysts.

Nouriel Roubini notes :

Chris Whalen is one of the leading independent analysts of the US
banking and financial system.

Whalen notes today that the big American banks get a subsidy in excess of /$780 billion/ dollars per /year/ .

Specifically, Whalen estimates the following types of subsidies to the giant banks:

* $360 billion in Federal Reserve subsidies, by creating an artificial
"spread" in interest rates

* $120 billion in federal deposit insurance (through the FDIC, backed
by the Treasury)

* At least $100 billion in government-guaranteed loans, especially
mortgages

* At least $100 billion in monopolistic advantages in the secondary
market for home mortgages. Specifically, the government subsidies
the big banks to steal away fees earned from smaller banks, gain on
sale into the TBA market and servicing. Whalen quotes a veteran
banker explaining:

The smaller players lived on the bleeding edge of the mortgage
market, but they were also far more efficient lenders than the large
banks. Now, care of the Fed, we have a highly inefficient oligopoly
in the US mortgage market that is built around the largest banks.

* More than $100 billion in fees in the over-the-counter (OTC)
derivative market. Whalen explains

The lack of capital required in these transactions and other special
dispensations from the Fed provide the zombie banks with unlimited
leverage and almost no public scrutiny. The fact that OTC contracts
are exempt from the automatic stay in bankruptcy is a huge subsidy.
The bilateral market structure is another.

That totals $780 billion /per year/.

But Whalen notes that there are many other subsidies as well:

The above points are only a *partial list* of the subsidies and
other flows that allow the members of the banking industry to
pretend to be profitable, risk-taking organizations in a free market
economy.

The bailouts of the big banks amount to /trillions/ of dollars, are never-ending ... and continue to this day . (Indeed, the government is arguably paying trillions of dollars more in unnecessary interest payments just to have the banks "create" money, instead of creating it itself ... as the Founding Fathers may have envisioned /.)/

Whalen notes that the big banks are not really profitable:

[These are] structural subsidies blessed by Congress and the Fed
that make large banks look more profitable than they truly are. In
fact, the TBTF banks are *not really profitable at all.*

***

The reality, sad to say, is that banks in 21st Century America are
government sponsored enterprises ....

Indeed, they are government sponsored enterprises where all of the profits are privatized, and all of the losses socialized .

/And the big banks are not helping -- but are rather destroying -- the economy . Indeed, failing to break up the big banks -- and the malignant, symbiotic relationship between D.C. politicians and the banking giants -- is destroying our country .
/

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Comments

the usury of the plutocrats

this is annoying article more for the style than the content. It is entirely within the nature of rentiers to lobby to increase the rent being paid to them for privatizing what should considered as part of the economic commons. It is usury written into legislation, as if the banking sector as it exists is indispensable to the health of the economic life of the community. Instead it is nothing more than a freeloading predator upon the economic life of our communities.

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