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Partner bargains and favored nation status for firms that have paid off the right people are costing taxpayers billions of dollars through a bank subsidy plan. The “too big to fail” firms borrow federal finances for fractions of pennies on the dollar, a much greater discount than they deserve, to the hindrance of those responsible for it.


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Cash for banks to make


Taxpayers pay banks on low interest federal finances to keep business going, according to a recent Bloomberg editorial. This is basically bank subsidy funds since the short term loans from the Federal Reserve are used by the bank to make loans to the average person.


The subsidy is that some banks, the “too big to fail” ones, get favored country status as a result of being big and get a reduced interest rate. A paper by the International Monetary Fund found a discount of 0.8 percentage points, or 0.8 percent.


Bloomberg calculated the discount added up to $83 billion per year the taxpayers were gifting the banking industry. The top five largest banks, Bank of America, Wells Fargo, Chase bank, Citigroup and Goldman Sachs, got $64 billion, about what those firms made in profits last year.


Shareholders get the profit



Bloomberg believes that without the bank subsidy, only Wells Fargo would have really made a profit last year out of the top five banks. The profits of the biggest banks are given to shareholders rather than back to the working class individuals in the treasury.


Bloomberg was then inundated with gripes about how they arrived at those numbers. One could delve further into it, but as Bloomberg's editors rebuttal to criticism points out, the total amount of subsidies to banks is not entirely known as the government doesn't report it and by some metrics, the $83 billion might really be conservative.


To be fair, banks pay a ton for government authorities to get into office.


Ultimately, the banking industry, which really shouldn't need the help, is getting partner bargains at cost to the working class individuals.


Not a brand new idea


There have been other programs to help the banks too, one of which was the Temporary Liquidity Guarantee Program, according to a 2010 Daily Beast article. The program was mostly used by banks that already paid back TARP funds, such as Goldman Sachs. The bank borrowed $21.3 billion at 0.767 percent APR in the program and wound up saving $213 million in interest payments for the year because of it.


Neither is this uniquely American; the National Economic Foundation in the U.K., according to The Telegraph, in 2011, found similarly that the Bank of England was likewise lending finances at reduced rates to large banks. The discount was estimated to be worth 100 billion pounds (about $152 billion) in 2009. The Bank of England released a report last year finding the implicit subsidy was worth up to 220 billion pounds over 2009 and 2010.


It was even admitted by Dallas Federal Reserve President Richard Fischer that large banks have an unfair advantage, according to Reuters.



Sources


Bloomberg


Daily Beast

Bloomberg
 
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