Without Taxpayer Help, Too Big to Fail Banks Would Only Break Even

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Lloyd C. Blankfein, chairman and CEO of Goldman Sachs, speaks during a Bloomberg Television interview. (David Paul Morris/Bloomberg)

Wall Street banks once occupied a unique position of power, privilege, and prestige in this country. Looking back, the apogee was probably late in the Clinton administration, in the era of deregulation, when Treasury Secretary Robert Rubin -- former co-chair of Goldman Sachs and future director of Citigroup -- appeared on the cover of Time magazine with his protégé, Lawrence Summers, and Federal Reserve Chairman Alan Greenspan, over the headline "The Committee to Save the World."

After the cataclysm of 2008, much of the power and privilege remains, but the prestige is rapidly fading. Today brings what seems like a minor milestone in the banks' fall from grace: a Bloomberg editorial alleging that Wall Street's largest financial firms would only break even without taxpayer backstops, and calling for an end to the perverse incentives that the current arrangement creates.

Bloomberg knows that its business-focused readers may be unprepared for such news: "Granted, it's a hard concept to swallow." But as the editors explain, the widespread perception that JPMorgan Chase (JPM), Goldman Sachs (GS) et al. are too big to fail effectively gives them a discount when they borrow money, since creditors presume -- with good reason, given recent history -- that the government will step in and bail the banks out if they get into serious trouble. A recent study by two economists concluded that Wall Street's borrowing costs are thereby reduced by about 0.8 percentage points, a discount which "applies to all their liabilities, including bonds and customer deposits."

Calculate the total cost of that seemingly tiny reduction and you arrive at an $83 billion annual taxpayer subsidy to the 10 largest U.S. banks by assets -- "tantamount to the government giving the banks about 3 cents of every tax dollar collected." As if that weren't shocking enough, Bloomberg goes on to explain that the top five banks -- JPMorgan, Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), and Goldman -- aren't actually profitable, since the share of the total subsidy that they receive, $64 billion, is "roughly equal to their typical annual profits."

For tables featuring data on individual banks, as well as the editors' recommendations for how to reign in this rampant corporate welfare, head over to Bloomberg.




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drbuckles

Since 2008 the wealthy saw their wealth increase by 120%, as the middle class get squeezed and demands lower prices, and they only pay, at the highest rate 20%. During WWI and WWII they paid 77% and 92%, respectively, for the wars. But the Bush and Republican Congress lowered their taxes and started two wars without funding them. Now we have banks that are too big to fail being funded by the FED to stay afloat and drift along looking for profits in places they shouldn't be. It's time to end them, or break them up, so that they float on their own dime, and the rest of the public doesn't have to put up with self created debt load of derivatives. The depression isn't over until those banks are broken up and the rich pay for the wars that they got a pass on.

February 25 2013 at 8:25 PM Report abuse rate up rate down Reply
awpaguy

This whole too big to fail bank business is a joke. The government should never have got involved in the habit of bailing out any failing business. When a company fails, be it a bank or an automobile company, there will always be another one to come along and take people's money. Just another screwed up example of the entitled mentality of our government, business world, and the American people.

February 24 2013 at 9:58 AM Report abuse +8 rate up rate down Reply
frank1946

Retail Banks are not Investment Banks !

Two different Worlds and Business Plans.

Maybe a Credit Union is preferable to too much Risk ?

February 24 2013 at 6:00 AM Report abuse +7 rate up rate down Reply
Ron

Boo F'ng hoo! Banks have profited off of us for years!!! I am just breaking even with this piece of chit president!!!
Remember that gas ALONE was $1.65 when this vacation, golfing PUNK took control of us!!!! Google: gas price, dec 2008, cnn!!!!!! Got inflation? YA NOBAMA!!!!!

February 23 2013 at 11:52 PM Report abuse -10 rate up rate down Reply
1 reply to Ron's comment
scott.murphy11@yahoo.com

hey,hey you can'y go around telling people the truth! what is wrong with you lol

February 24 2013 at 8:51 AM Report abuse -8 rate up rate down Reply
2 replies to scott.murphy11@yahoo.com's comment
Tony

It was $3.39 a gallon when he took office..... Gas went up in 2005.... I bought my '05 Hyundai brand new because my truck had finally had it and I needed something "cheap" on gas. That being said, cheap gas is more addictive and destructive than crack cocaine.... It devalued tranportation and allowed this country to make foolish, uneconomical, unAmerican choices. (And for you tree-huggers out there, unecological choices.)

February 24 2013 at 7:43 PM Report abuse rate up rate down
Tony

Well.... it helps if it WERE the truth.... gas was $2.89 when I bought my 2005 Hyundai brand new to replace a worn out truck. My chief reason for buying it was gas prices. So far....... I've not found a chart, news record, or any other data to support his claim......... Not that I'm complaining much, my BP and ConocoPhillips stocks have been solid performers for the last eight years I've had them. But the reality is this--cheap gas devalued transportation and allowed this country to make uneconomic, unAmerican, and unecological decisions.......and now the bill is finally coming due and EVERYONE is crying about not being able to pay. Cheap fuel, has in short, become the crack cocaine/methamphetamine of this country and like any other addiction....... it's going to be a really painful, unpleasant withdrawal.

February 24 2013 at 7:59 PM Report abuse rate up rate down
rjoh959287

Let them fail, Break them up. These large conclomerate Banks have no right to stay in buisiness taking advantage of every loophole and not caring a bout the customer

February 23 2013 at 6:45 PM Report abuse +5 rate up rate down Reply
wallysdad1

Help the banks? LOL They screw us all the time and I do not see them helping us when we are out of work or need help. They line their own pockets at our expense, yet they expect the taxoayers to bail them out AGAIN? What a joke.................

February 23 2013 at 11:36 AM Report abuse +9 rate up rate down Reply
DRILLER

Maybe it is Time to pull the Government Tit.
if a company cannot make it after the first few years . they need to be broken up .
I dont recall reading of any provision that states # Amendment " Shall be garaunteed The right to freeload and abscond while paying millions to Executives", or one that reads "shall be Entitled to the monies of the Taxpayer, while Squandering.

February 23 2013 at 11:29 AM Report abuse +9 rate up rate down Reply
omgnojobs

REGULAR GAS IS NOW $5 A GAL IN CALIFORNIA N NEW YORK ~~OBAMY==COMMUNIST. !

February 23 2013 at 10:57 AM Report abuse -7 rate up rate down Reply
2 replies to omgnojobs's comment
dims_drool

it's really FIVE BUCKS a gallon ???

February 23 2013 at 9:17 PM Report abuse -10 rate up rate down Reply
Ron

Correct! Gas WAS $165 when the punk took control! For the ignorant out there, Google: Gas Price, Dec 2008, CNN

February 23 2013 at 11:55 PM Report abuse -10 rate up rate down Reply
Dhubhgaill

What a bunch of biased fruitcakes are on here. You need to remove your blinders and see what is truly happening and stop blaming everyone but yourself. This article was about banks breaking even without taxpayers help....what is wrong with that? Maybe they need to cut some salaries and perks at the top that are breaking their banks. If their top management had to live like the rest of us cutting back wherever necessary just to eat and by medications and keep a roof over our head, maybe they would learn austerity. Best way to make a profit for them is eliminate fluff and get back to real business. I hated Bush, and I really dislike Obama, but until the political parties put their own personal agendas aside and decide to work to make America great again, we will keep slipping until we are a third world country, broke and impoverished.

February 23 2013 at 10:32 AM Report abuse +12 rate up rate down Reply
1 reply to Dhubhgaill's comment
caboranches

ITS TOO LATE ,OBAMY DROVE AMERICAS ECONOMY N HOUSING MARKETS INTO THE CRAPPER N WITH RECORD UNEMPLOYMENT THAT IS "STILL" RISING TODAY~~OBAMY== COMMUNIST N INCOMPETENT N STILL "OBSTRUCTING" OUR AMERICAN RECOVERY FOR THE LAST 4 PLUS YEARS NOW. !

February 23 2013 at 10:41 AM Report abuse -6 rate up rate down Reply
omgnojobs

KLINTON DISGRACED OUR NATION N WAS IMPEACHED N NOW ITS OBAMYS TURN TO BE IMPEACHED . !

February 23 2013 at 9:51 AM Report abuse -9 rate up rate down Reply
1 reply to omgnojobs's comment
teapotparty11

KEEP PAINTING THEM PRETTY PICTURES PRESIDENT BUSH!!! YOU MAY HAVE BUTCHERED THE ENGLISH LANGUAGE, BUT YOU SURE KNOW HOW TO EXPRESS YOURSELF ON A CANVAS!!!

TEA PARTY AND THE ARTS FOREVER!!!!
CHENEY/BACHMANN 2016!!!

February 23 2013 at 9:57 AM Report abuse +9 rate up rate down Reply
1 reply to teapotparty11's comment
omgnojobs

>.TEA PARTY IS USA !~~TEA PARTY IS USA ! USA !~USA !

February 23 2013 at 10:00 AM Report abuse -8 rate up rate down