Bloomberg News has published a damning editorial (using research from the IMF and its own analysis) that reveals the massive implicit subsidies our largest financial institutions receive from the federal government every year.
The numbers are staggering.
Spoiler: it's more than the federal government spends on education in our country every year.
Here's how Bloomberg begins its editorial:
When JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon testifies in the U.S. House today, he will present himself as a champion of free-market capitalism in opposition to an overweening government. His position would be more convincing if his bank weren’t such a beneficiary of corporate welfare.
To be precise, JPMorgan receives a government subsidy worth about $14 billion a year, according to research published by the International Monetary Fund and our own analysis of bank balance sheets. The money helps the bank pay big salaries and bonuses. More important, it distorts markets, fueling crises such as the recent subprime-lending disaster and the sovereign-debt debacle that is now threatening to destroy the euro and sink the global economy.
Corporate welfare. It's a phrase which needs to proliferate, for as Bloomberg reveals (and I highly recommend reading the entire piece), our country's largest banks receive what it terms an implicit subsidy of staggering proportions.
Here's how it works: with each banking crisis, and each subsequent bailout to prevent catastrophic economic collapse, government subsidies end up shaving a significant percentage off the banks' overall borrowing costs. This shaving, due to government welfare, becomes an "implicit subsidy."
Here's Bloomberg again (emphasis mine):
To estimate the dollar value of the subsidy in the U.S., we multiplied it by the debt and deposits of 18 of the country’s largest banks, including JPMorgan, Bank of America Corp. and Citigroup Inc. The result: about $76 billion a year. The number is roughly equivalent to the banks’ total profits over the past 12 months, or more than the federal government spends every year on education.
JPMorgan’s share of the subsidy is $14 billion a year, or about 77 percent of its net income for the past four quarters. In other words, U.S. taxpayers helped foot the bill for the multibillion-dollar trading loss that is the focus of today’s hearing. They’ve also provided more direct support: Dimon noted in a recent conference call that the Home Affordable Refinancing Program, which allows banks to generate income by modifying government-guaranteed mortgages, made a significant contribution to JPMorgan’s earnings in the first three months of 2012.
What is new here is the concept of an implicit subsidy and the way in which it is being formulated by the IMF and Bloomberg. Framed another way, what is new here is the scope of the corporate welfare (via lowered borrowing costs) that is propping up those institutions that would otherwise fail.
What's the solution conservatives have for helping those among us who are subsisting on welfare? Cut it out entirely and "inspire" the poor or the struggling to pull themselves up by their own bootstraps.
Intersesting advice in an environment where our country's largest financial institutions and corporate elite are being propped up by welfare payments of unimaginable scale.
The solution? For Bloomberg, it's simple: minimize the subsidy for big banks.
An idea conservatives should champion, no?
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