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

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

Preface: Bloomberg’s recent estimate that the big banks are subsidized to the tune of $83 billion dollars per year created tremendous controversy.  But – as shown below – the real number is many times larger.

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

Well-known economist 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 (Bloomberg, Business Insider, Huffington Post, and many other publications have documented that the government is subsidizing big banks with artificial and guaranteed “spreads”, where the banks borrow cheaper than any consumer can, and then lend the money back to the government at much higher 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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  • Honest Harry’s Used Cars

    The article, “Top Banking Analyst: Subsidies to Giant Banks Exceed $780 Billion Dollars Per YEAR” misses one big point. These are -UNFUNDED SUBSIDIES-.

    • gozounlimited

      Really? …. “What are the costs of people being cheated?”

      (Business Insider) It was an interesting question posed to SEC nominee Mary Jo White by Senator Elizabeth Warren. Ms. Warren asked Ms. White to take into account what an entities actions are costing (and could continue to cost) the American people before charging them with wrongdoing. White agreed, saying the SEC should pursue quantitative analysis wherever possible.

      Numbers do tend to put things in perspective.

      http://www.businessinsider.com/elizabeth-warren-sec-confirmation-2013-3

  • amerikagulag

    Wow! That’s more than the first installment of the BUSH bailout! Or the BUSH ILLEGAL INVASION OF IRAQ.

  • http://www.facebook.com/people/Biloxi-Marx/100000310149394 Biloxi Marx
  • shawn_von_socialist

    think if that money was handed out to poor people who went and spent it in middle-class business then the middle-class either saved it or invested it or went out and bought from the upper class business it would created a boom in aggerate demand what we’ve needed for years

    recycling money is more important then hoarding it “as capital”…if you have a good business there is never any problem getting capital

    derp a herp quack quak quack

  • http://twitter.com/hintongerry Gerald Hinton

    We can’t afford “Too big to fail”. In order to bring real democracy back to this country we have demand that government breakup all corporations that are “too big to fail.”

  • http://twitter.com/hintongerry Gerald Hinton

    We can’t afford “Too big to fail”. In order to bring real democracy back to this country we have demand that government breakup all corporations that are “too big to fail.”

  • http://www.facebook.com/bill.marshall.7796 Bill Marshall

    Is this article saying that the us taxpayers are paying out 120 billion in FDIC payouts or are we just “backing ” it if a bank fails and the premiums they paid don’t cover it? Same goes for all the others. How much actual CASH is either leaving the treasury on their behalf or not going into the treasury and staying in the banks pockets. I am not defending banks I am just sick of idiot ecomomists who never ran a business or made a payroll trying to play with numbers to scare people. The fed giving money to banks cheaply allows banks to lend cheaply which helps homeowners keep their homes or get out from an underwater mortgage. The rules that big banks can amortize easier than smaller banks are to keep all banks from giving out liar loans.

    Not being able to shed derivative losses from bankruptcy is not a gift to the bank as much as it is a deterrent for people who take too many risks with borrowed money. It in itself is a form of regulation and taxpayer money doesn’t pay this money back. the idiot that borrowed it and bet wrong does.
    Like I said i hate banks but this article is total BS

  • http://www.facebook.com/steve.dutch.564 Steve Dutch

    Most of these have no net cost to consumers. FDIC costs nothing unless a bank fails, so the only cost of FDIC is to depositors at failed banks.

  • heinrich6666

    One has to ask: is this all just simple greed? Or is there a national security state aspect as well.. Obviously if you can keep a grip the world’s international finance through ‘private’ banks, you’d have every reason to keep those zombie banks running… It’s the same reason why none of the big US telcos will ever go out of business: NSA et al. have too much invested in their “private/public” relationships…

  • http://www.facebook.com/people/Lord-Byng/628747040 Lord Byng

    Americans have been trained for thirty years to be bad at economics. In their rush first to battle and then to bury socialism, they adopt a capitalist puritanism that blinds them to this one obvious fact: capitalism adores a monopoly.

    What you have in banking is a huge oligopoly- if not outright monopoly. They can charge anything because there’s no competition, no market. These are monopoly profits we’re looking at.

    In certain enterprises there can never be a free market because of market conditions. Banking has become one of them. Scale has eliminated competition.

    And American ideological rigidity blocks them from ever getting the idea though their three-foot thick skulls that the only way to deal with monopoly banking is to nationalize it. But oh, no, nationalization would be socialism.

    Capitalism with certain industries nationalized is a kind of socialism, to be sure.

    But pure capitalism, this business of allowing monopoly banking, just doesn’t work; it’s going to take down the real capitalist economy with it.

    That’s what all those lobbyists are doing in Washington: defending a ruthless monopoly.

    With the bailout Americans bought the banks fifty times over. Today, they’re buying them again, year after year, paying ten times the total capital of all of the banks, again and again.

    When are Americans going to realize that they own them? Throw out the shareholders, and keep what you already own? Instead of giving them back, free of charge, year after year, to the incompetent morons who run them?

  • http://www.facebook.com/btakacss Barry Takacss

    so where is the mention of the taxes they pay in before they make dime one of profit? or of the taxes they pay on employee payroll?

  • http://www.facebook.com/btakacss Barry Takacss

    so where is the mention of the taxes they pay in before they make dime one of profit? or of the taxes they pay on employee payroll?

  • http://www.facebook.com/btakacss Barry Takacss

    so where is the mention of the taxes they pay in before they make dime one of profit? or of the taxes they pay on employee payroll?

  • http://www.facebook.com/btakacss Barry Takacss

    so where is the mention of the taxes they pay in before they make dime one of profit? or of the taxes they pay on employee payroll?

  • http://www.facebook.com/profile.php?id=100000878859375 Ross Miller

    The only way to fix this is to do it ourselves. See how you can join the fight at http://www.WOLF-PAC.com

  • http://www.facebook.com/people/Nihal-Bhat/100002277801326 Nihal Bhat

    one word sums it all up – ponzi

  • texasjo

    This is ridiculous. I know of two big banks that were blackmailed into TARP, and still get persecuted for helping.

 

 

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