It's the "too big to fail" subsidy. Dean Baker talked about this, in part, in his keynote address to the TUC's After Austerity conference in London today.
Dean's keynote is on http://livestre.am/3Zmqo at time :29 minutes to 1:08 on the video and answers to questions 1:14 to 1:24. On Tue, Jun 26, 2012 at 1:20 PM, D & N <[email protected]> wrote: > > Banksters are the true leeches of society, sanctioned to receive without > having to "contribute" to justify the gift. It's maddening to know they > continue to get undeserved welfare subsidies, let alone respect. > They neither work for society, nor for the planet--quite the opposite. Yet > most who need a Basic Income subsidy because of chaotic societal structure > will be groveling decades longer before they and their families are granted > a fighting chance just for basics. With the well-educated and influential > in society tacitly rooting for Wall Street by not speaking out against > corporate subsidies, yet getting all riled up about (far cheaper) > beneficial programs like Basic Income, what chance does society have > towards diversifying, towards change? > > Biased resentments develop strangely. Putting on a suit and going to work, > pretending to stimulate the economy while continuing to rip off government > and individuals is deemed welfare-worthy, even though the end result is > global impoverishment. At length we discuss the business world's > strategies, though such strategies are primarily profit driven, but those > living at or below the poverty line, who consist of people equally > deserving of sharing in profits from (ideally sustainable) world resources, > with potential and capacity to advance this civilization, are rarely > discussed, but for the need of regulating any possible assistance in the > strictest of terms. Terms which the feds wouldn't dare impose on the > 'Suits'. Being born into disadvantage deserves scorn and scrutiny; no > second, third, or fourth chances like the banks, the insurance > corporations, or Wall Street have enjoyed. Imagine a welfare recipient > being allowed to keep their part-time job at Burger King after failing to > report earnings! Would never happen, recipient gets cut off. Criminal for > life. Bankers do same, and continue to rip off society with even fewer > regulations to prevent disaster. Get bonuses. > > Steer these subsidies towards life, and the jobs will come. > > > *Natalia* *Kuzmyn* > > > http://www.bloomberg.com/news/2012-06-18/dear-mr-dimon-is-your-bank-getting-corporate-welfare-.html > > Dear Mr. Dimon, Is Your Bank Getting Corporate Welfare? > > When JPMorgan Chase & Co. Chief Executive Officer Jamie > Dimon<http://topics.bloomberg.com/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 <http://topics.bloomberg.com/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. > > How can all this be? Let’s take it step by step. > > In recent decades, governments and central banks around the world have > developed a consistent pattern of behavior when trouble strikes banks that > are large or interconnected enough to threaten the broader economy: They > step in to ensure that all the bank’s creditors, not just depositors, are > paid in full. Although typically necessary to prevent permanent economic > damage, such bailouts encourage a reckless confidence among creditors. They > assume the government will always make them whole, so they become willing > to lend at lower rates, particularly to systemically important banks. > Implicit Subsidy > > With each new banking crisis, the value of the implicit subsidy grows. In > a recent paper <http://www.imf.org/external/pubs/ft/wp/2012/wp12128.pdf>, > two economists -- Kenichi Ueda of the IMF and Beatrice Weder Di Mauro of > the University of Mainz -- estimated that as of 2009 the expectation of > government support was shaving about 0.8 percentage point off large banks’ > borrowing costs. That’s up from 0.6 percentage point in 2007, before the > financial crisis prompted a global round of bank bailouts. > > 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. > > Like all subsidies, the taxpayer largesse distorts supply. If the > government supports corn farmers, you get too much corn. If the government > subsidizes banks, you get too much credit. As of March, households, > companies and government in the U.S. had amassed debts of $38.6 > trillion<http://www.bloomberg.com/quote/DOUTTOTL:IND>, > or 2.5 times the country’s gross domestic product. That’s up from 1.3 times > in 1980. The picture is similar in the euro area, where debt > outstanding<http://www.bloomberg.com/quote/EUDSTLAO:IND>is 1.8 times GDP, > double the level of 1995. > > The oversupply of credit -- also supported in the U.S. by > government-backed lenders Fannie > Mae<http://topics.bloomberg.com/fannie-mae/>and Freddie > Mac <http://topics.bloomberg.com/freddie-mac/>, and by tax breaks on > mortgage interest -- encourages risky behavior. People buy houses they > can’t afford, companies borrow too much for acquisitions, and banks employ > excessive leverage to boost the returns they can offer their shareholders. > The result is a bloated finance > industry<http://www.bloomberg.com/quote/GDVAINSU:IND>: > As of 2011, the sector accounted for 8.3 percent of the U.S. > economy<http://topics.bloomberg.com/u.s.-economy/>, > compared with 4.9 percent in 1980. > Costly Cycle > > Inevitably, the debt burden becomes overwhelming, precipitating crises in > which banks suffer losses, private credit dries up, and people cut back on > spending to pay down their debts. The onus then shifts to central banks and > governments as they engineer bailouts and boost their spending to prevent > economic collapse -- a pattern that has repeated itself throughout the > developed world, according to research by economists Carmen Reinhart and > Kenneth > Rogoff<http://www.carmenreinhart.com/research/recent-working-papers-by-topic/>. > This costly cycle has helped increase sovereign > debts<http://www.bloomberg.com/quote/IGS%25USA:IND>to the point where they > now threaten the solvency of governments. > > The solution: Minimize the subsidy. Require banks’ shareholders to put up > enough capital to make bailouts highly unlikely (we advocate 20 percent > of > assets<http://www.bloomberg.com/news/2012-05-06/rules-for-bank-capital-still-broken-after-four-years.html>). > Allow some creditors to take losses when a bank gets into trouble, so they > won’t assume they’re safe (an approach regulators in the U.S. and > Europe<http://topics.bloomberg.com/europe/>are considering). Cut off > subsidies to traders, such as the folks in London > who lost billions for JPMorgan, by forbidding speculative trading activity > at banks (the goal of the Volcker rule in the U.S. and financial > ring-fencing in the U.K.). > > Why hasn’t this been done? One partial explanation can be found in the > amount of money banks put into election campaigns and into lobbying, which > has recently included efforts to water down the Dodd-Frank financial-reform > legislation. According to the nonprofit Center for Responsive Politics, the > broad financial industry -- a category that includes real estate companies > and insurers -- has spent $285 million on political giving in the 2012 > election cycle. That’s much more than any other industry > spends<http://www.opensecrets.org/industries/index.php>. > > > Lawmakers and regulators need to recognize just how costly business as > usual will be. When Dimon pushes back against capital > requirements<http://topics.bloomberg.com/capital-requirements/>or the Volcker > rule, it’s worth remembering that he’s pushing for a form of > corporate welfare that, left unchecked, could lead to a crisis too big for > the government to contain. > > Read more opinion online from Bloomberg View<http://www.bloomberg.com/view/>. > Subscribe to receive a daily > e-mail<http://bloomberg.us2.list-manage2.com/subscribe?u=98bac6cd6075b07f398b277fa&id=2ebec5a5b8>highlighting > new View editorials, columns and op-ed articles. > > Today’s highlights: the editors on Greek > elections<http://www.bloomberg.com/news/2012-06-18/germany-must-make-greece-s-vote-count.html?cmpid=BVrelated>; > Jeffrey Goldberg <http://topics.bloomberg.com/jeffrey-goldberg/> on Romney, > Mormons and > Jews<http://www.bloomberg.com/news/2012-06-18/let-mad-lib-test-settle-mormon-campaign-debate.html?cmpid=BVrelated>; > Ramesh Ponnuru <http://topics.bloomberg.com/ramesh-ponnuru/> on Grover > Norquist’s latest > fight<http://www.bloomberg.com/news/2012-06-18/grover-norquist-isn-t-losing-the-no-tax-battle.html?cmpid=BVrelated>; > Betsey Stevenson <http://topics.bloomberg.com/betsey-stevenson/> and Justin > Wolfers <http://topics.bloomberg.com/justin-wolfers/> on equal > opportunity in > sports<http://www.bloomberg.com/news/2012-06-18/equal-opportunity-in-sports-makes-both-sexes-richer.html?cmpid=BVrelated>; > Thomas Cooley <http://topics.bloomberg.com/thomas-cooley/>, Matthew > Richardson <http://topics.bloomberg.com/matthew-richardson/> and Kermit > Schoenholtz on rescuing Europe’s > banks<http://www.bloomberg.com/news/2012-06-18/saving-euro-starts-with-banks-cooley-richardson-schoenholtz.html?cmpid=BVrelated>; > Simon Serfaty and Alexis Serfaty on optimistic news for > Europe<http://www.bloomberg.com/news/2012-06-18/greek-vote-another-reason-to-bet-on-europe.html?cmpid=BVrelated>; > Amy Monahan on the courts and voters’ pension > reforms<http://www.bloomberg.com/news/2012-06-18/pension-reforms-have-their-day-in-court.html?cmpid=BVrelated>. > > > > _______________________________________________ > Futurework mailing list > [email protected] > https://lists.uwaterloo.ca/mailman/listinfo/futurework > > -- Cheers, Tom Walker (Sandwichman)
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