Elizabeth Warren: Too-big-to-fail banks get $83bn/year subsidy. Why?

Earlier this month, new Democratic Senator from Massachusetts Elizabeth Warren said that too big to fail has become too big for trial.

Staying on theme, Warren has again asked an important question about the too-big-to-fail banks, this time with Federal Reserve Chairman Ben Bernanke.

Elizabeth Warren has only been in the Senate a short amount of time, but she’s already ruffling feathers. Warren asks the questions that most in DC won’t ask. It’s not polite dinner conversation to ask the political class why the banks are getting a free ride.

Warren’s exchange with Bernanke is really something to see.

The key exchange about too-big-to-fail is at the end of the clip, when Warren brings up the taxpayer financing of Wall Street’s insurance.

Bloomberg did an excellent analysis of the taxpayer financing last week, and concluded that the bank profits that look so large really aren’t there. The bank “profits” match the amount of money that taxpayers fork out for the insurance policies that the banks need in case of trouble.  In other words, the banks’ “profit” is pretty much taxpayer funded. As Bloomberg notes:

The profits they report are essentially transfers from taxpayers to their shareholders.”

The amount of “profit” and taxpayer money is about $83 billion per year, which is a stunning amount. As Warren says, if anyone else needs insurance, they pay for it — so why should the banks be subsidized for their insurance costs?

Elizabeth Warren: So I understand that we’re all trying to get to the end of “too big to fail.” But my question, Mr. Chairman, is until we do, should those biggest financial institutions be repaying the American taxpayer that $83 billion subsidy that they are getting?…It is working like an insurance policy. Ordinary folks pay for homeowners insurance. Ordinary folks pay for car insurance. And these big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year simply because people believe that the government would step in and bail them out. And I’m just saying, if they are getting it, why shouldn’t they pay for it?

Chairman Bernanke: I think we should get rid of it.

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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