America’s biggest banks survive thanks only to substantial federal welfare

February 23, 2013 | By | 1 Reply More

Here’s the bottom line, as they say.

So what if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?

This should be the started of a reinvigorated national conversation about immediate and dramatic reform of America’s biggest banks.


Category: Corruption

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

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  1. Erich Vieth says:

    According to R.C. Whalen, the federal subsidies received by America’s banks are far greater than the numbers widely reported last month.

    Unfortunately, neither Senator Warren nor the folks at the IMF have a full appreciation for the scope of the subsidies that run through the P&Ls of the US banking industry and, in particular, the top-four zombie banks — C, WFC, BAC and JOM — which account for more than two-thirds of the total assets in the industry. And you don’t need to count any of the emergency programs and subsidies put in place after the 2007 subprime crisis in order to understand the subsidy flows to the zombie dance queens.

    By my conservative reckoning, the subsidies for the zombie banks total more than $3 annually for every dollar in income reported by the industry in profit. The industry reported $35 billion in profits in Q4 2012, so we’ll call annual income about $150 billion annually. Let’s start with the broadest subsidies that affect all banks and work our way up the food chain to those subsidies that only impact the TBTF zombie queens.

    First and to Senator [Elizabeth Warren’s] point, the Fed is currently subsidizing the cost of funds for the US banking industry to the tune of about $90 billion per quarter or $360 billion annually.

    . . .

    One of the biggest subsidies enjoyed by the zombie dance queens is the oligopoly control these banks exert over the secondary market for home mortgages. When a little bank makes a loan to help you buy a house it will often sell that mortgage to a federal agency to recoup its capital and be in a position to make another loan. (See “It’s a Wonderful Life” with Jimmy Stewart if you don’t follow me.) When the little bank or non-bank lender wants to do business with Fannie Mae, Freddie Mac or the FHA, however, it must sell its loan to one of the zombie dance queens, who pocket half of the profit on the loan for their trouble. This is just one of the 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.

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