Every business owner dreams of monopoly--barriers to entry and higher prices. But what if you can get massive subsidies at the same time? A study by Bloomberg estimates that the largest US bankers have gotten $83 billion dollars from the US government since the crisis. (see here for the story) . Since they published their report, critics have attacked the methodology but not the substance of their argument.
Two policy issues seem most important to me. First, the financial sector is not as profitable as commonly assumed. Second, "Others may come up with different numbers, but the conclusion is the same: Banks get a very big subsidy from taxpayers. This subsidy distorts markets and encourages banks to become a threat to the economy."
Yesterday, Senator Elizabeth Warren grilled Ben Bernanke over this same topic. During the Senate Banking Committee hearing, she said to him,
ReplyDelete"Now we have a double problem which is the big banks ... have gotten bigger and at the same time ... investors believe with too big to fail out there, that it's safer to put your money into the big banks and not the big banks, effectively creating an insurance policy for the big banks .... Last week Bloomberg did the math on it and came up with the number $83 billion, that the big banks get in what is essentially a free insurance policy... So I understand that we're all trying to get to the end of TBTF(Too Big to Fail), but my question Mr. Chairman is, until we do, should those biggest financial institutions be paying the American tax payer that $83 billion subsidy they're getting."
I felt like this was a rare moment of hope for Washington when I first read this.