New York Times business reporter, Gretchen Morgenson, finds that the CEPR -- the Center for Economic Policy Research (Dean Baker and crew) -- is looking at the next affront to worn-down taxpayers. Next time the baggers hit the streets with Glenn Beck and Dick Armey, it may well be the liberal CEPR that provides accurate data to stir them up. Indeed, we liberals and progressives may be on those streets with them.
"Taxpayers may mistakenly believe" Morgenson writes, "that when a bailout recipient repays a loan, subsidies received by the institution have stopped." Nuh-uh. Not always. The government, of course, doesn't want the taxpayer to know if the subsidies continue. CEPR thinks we have a right to know so they've taken a look at the figures.
Dean Baker and the CEPR studied FDIC data from 20o0 onward and found an area where it sure looks as though the government may well be continuing to subsidize those "too-big-to-fail" bank holding companies after they've supposedly "paid us back" for our helpful bailouts last year. Morgenson reports:
From the beginning of 2000 through the fourth quarter of 2007, the cost of funds for small institutions averaged 0.29 percentage point more than that of banks with $100 billion or more in assets. But from late 2008 through June 2009, when bailouts for large institutions became expected, this spread widened to an average of 0.78 percentage point. At that level, Mr. Baker calculated, the total taxpayer subsidy for the 18 large bank holding companies was $34.1 billion a year.
Mr. Baker is the first to note that the expanding gap may not be attributable solely to the too-big-to-fail policy. Banks’ cost of money has risen during other times of economic uncertainty, like the recession of 2001. After that downturn, the cost-of-funds spread between small and large banks rose to 0.69 percentage point.
Given that increase, Mr. Baker said, one could calculate a more conservative assessment of the too-big-to-fail subsidy. Using the difference between the spread during the last recession and the current figure, which is 0.09 percentage point, the annual subsidy for the large banks reached $6.3 billion.
Mr. Baker says it is important to continue measuring this difference in costs to see whether the subsidy disappears or whether it is a continuing transfer of income. If the spread vanishes, it could indicate that rock-bottom interest rates and excessive market turbulence were responsible for the wide gap.“Recognizing that you can’t have a definitive answer to this, it is important to understand there is real money at stake,” he said. “There is a subsidy here, and we either have to say we are going to break up the banks and get rid of the subsidy, or if we don’t do that, then we have to be confident that we have put in enough regulation to offset the subsidy.”
Even the smallest estimate shows that the relationship of subsidy to the banks' profits is extraordinarily high. Like, for example Capital One:
"Mr. Baker’s assessment of the benefit provided to Capital One ranges from 31 percent of profits to a possible 166 percent."
Breaking up the banks sounds like the best response, no matter what the numbers turn out to show. It's not a cheap shot to say that many will be wondering -- if subsidies have indeed continued to be paid under the table to banks -- just how much of those taxpayer subsidies become mammoth bonuses.
See you at the Mall?
