Too Big To Fail banks bankrupting America with endless taxpayer subsidies

Taking away the implicit government guarantee of Too Big To Fail banks would increase the interest costs on all their liabilities by 0.8%.

This amounts to $83bn for the top 10 banks.
Taking this implicit government guarantee away would wipe out all of the big banks profits.

The top 5 banks have $9tn in assets equivalent to more than 50% of the US annual economy.
The top 5 banks account for $64bn of the implicit government subsidy for TBTF.

N.B. these implicit government guarantees are exactly the same as the government guarantees for Fannie Mae and Freddie Mac. Private companies with implicit government guarantees that went bust and had to be bailed out at a huge cost to the tax payer.

Source : Research by Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz 
http://www.imf.org/external/pubs/ft/wp/2012/wp12128.pdf

N.B. If the big banks did not get these subsidies, smaller banks would be able to compete on a level playing field.
Smaller banks that are managed much better. Like the state owned bank of North Dakota.
Well managed smaller banks would grow their businesses and the poorly managed big banks would wither and decline to the benefit of everyone except the big bank execs.
That is how a market is supposed to operate - not endless government subsidies to certain companies for ever. That is a recipe for disaster - as we have already seen and will see again in the not too distant future when the banks call round for the next TARP bailout.



But there are far more government subsidies than this.
Without government subsidies the big banks would continually make huge losses.

Currently the Federal Reserve bank is buying impaired mortgage loans from the big banks at more than they are worth at the rate of $480 bn a year.
The losses the Federal Reserve make by recycling these assets, buying high and selling low, would otherwise be returned to the Treasury and taxpayers as part of the Federal Reserves annual profit and is a direct taxpayer subsidy of the big banks.

Then there is the $540bn a year the Fed is printing to buy up more US Treasuries.
This is also a direct subsidy to the big banks.

The banks are using the $1tn a year of newly printed Fed money to speculate with.
The stock market, bonds, food, oil, other commodities etc.
Speculation in all sorts of things. Speculation that is pushing up prices in al sorts of things - like your grocery shopping and the cost to fill up your gas tank.

The big banks are borrowing this money from the Fed at 0.25% interest.
It is not difficult to make money in all sorts of ways if you can borrow pretty much unlimited quantities of money at 0.25% interest.

The taxpayer will eventually pay for all of this huge quantity of free money the big banks are being given every year.
They will pay for it with higher food and gas prices, they will pay for it with higher unemployment and they will pay for it with higher prices of just about everything as companies pass on their increased costs to consumers.



Then there is all the Corporate Pork the big banks are getting from the government every year.
Direct taxpayer subsidies.

These items were specifically included in the actual Fiscal Cliff bill - I don't know how much more is included in other bills.

Some of the Corporate goodies injected into the Fiscal Cliff deal

"Sec. 328 extends “tax exempt financing for York Liberty Zone,” which was a program to provide post-9/11 recovery funds. Rather than going to small businesses affected, however, this was, according to Bloomberg, “little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp.” Michael Bloomberg himself actually thought the program was excessive, so that’s saying something. According to David Cay Johnston’s The Fine Print, Goldman got $1.6 billion in tax free financing for its new massive headquarters through Liberty Bonds. 

$9.4B a year Off-shore financing loophole for banks – Sec. 322 is an “Extension of the Active Financing Exception to Subpart F.” Very few tax loopholes have a trade association, but this one does. This strangely worded provision basically allows American corporations such as banks and manufactures to engage in certain lending practices and not pay taxes on income earned from it. According to this Washington Post piece, supporters of the bill include GE, Caterpillar, and JP Morgan. Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the “Active Financing Working Group.” 

Tax credits for foreign subsidiaries – Sec. 323 is an extension of the “Look-through treatment of payments between related CFCs under foreign personal holding company income rules.” This gibberish sounding provision cost $1.5 billion from 2010 and 2011, and the US Chamber loves it. It’s a provision that allows US multinationals to not pay taxes on income earned by companies they own abroad.