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

  1. cantbeeasydotcm says:

    Gezzzzz… Sen Warren, picking on Banks,,,,,, what’s next asking why oil companies need a government helping hand, or the movie industry????? I guess the Sen. just doesn’t understand capitalism! Go after them Sen Warren!!!! We need ya in 2016!!! Your the only one saying something there! http://www.cantbeeasy.com

  2. Eyeball_Kid says:

    My mistake. You’re right.

  3. Butch1 says:

    Yep, it’s pretty obvious whose in bed with him.

  4. SkippyFlipjack says:

    What the f**k is Bernanke talking about when he says “I think we should get rid of it”? There’s no “it” to get rid of, no specific subsidy to stop. The “taxpayer subsidy” isn’t one as we know it — comments below about how the $83 billion should be used on the sequester aren’t actually based in reality.

    The study that Bloomberg cites looked at almost 900 banks worldwide and found that the biggest ones got preferential interest rates because of their size, because the assumption is that their government would bail them out in case of trouble. Bigger banks get better borrowing rates, across all their liabilities (including bonds and customer deposits, Bloomberg notes.) That’s the “subsidy”, and taxpayers are footing the bill only in loose terms. The only way to end this “subsidy” would be for US and other governments to announce that there will never again be bailouts, and to somehow convince the rating agencies that this will be the truth into the future.

    It’s important to note that pre-financial collapse, eg 2007, the study calculates this “subsidy” at 60 basis points, rising to 80 basis points after the crash and bailouts. I think this means before the bailouts the worldwide subsidy was $60 billion, and it rose to $83 billion in the years since, so it’s not exactly a new phenomenon.

    I may be wrong about the numbers; I’m no financial guy. I’d be happy if someone explained why I was wrong. At the very least, this “subsidy” just doesn’t seem like one in the way we generally understand the term.

  5. Bill_Perdue says:

    Try reading my post. Reading is Fundamental.

  6. arcadesproject says:

    So what happens when the republicrats get tired of listening to this meddlesome woman? Will they find a way to take her down and out? Or let her keep talking, knowing it won’t make any difference?

  7. cole3244 says:

    boy that would be great, i could live with hilary but she voted for the war and thats a deal breaker for me plus just another establishment pol, your suggestion gives me stars in my eyes again after years of despair.

  8. Edgar Paz says:

    Why would the head of the corporate/big bank State do that?

  9. Naja pallida says:

    Just as some perspective, UN studies have said that it would take about $30 billion a year to solve world hunger.

  10. Eyeball_Kid says:

    Obama already made a deal with the devil. He’s sleeping with the banksters. He plays golf with them for God’s sake. He just nominated one for a cabinet post.

  11. Eyeball_Kid says:

    Are you suggesting that the GOP objects to corporate subsidies, in this case, the megabucks? Can you bring up any GOP bill proposal that backs up your apparent claim? When has the GOP EVER backed any policy that takes money away from large corporations?

  12. lynchie says:

    Not another Clinton or Bush

  13. nicho says:

    Comments disappear and then pop up again — seemingly at random. Often, you look at the top of the comment list and it will say “10 Comments” and you’ll see four or six and sometimes 10. I think Disqus is just totally screwed up.

  14. ComradeRutherford says:

    “Too-big-to-fail banks get $83bn/year subsidy. Why?”

    Because! That’s why.

  15. Just_AC says:

    Warren-Grayson 2016! Sorry, Hilary

  16. Bill_Perdue says:

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

    Because Democrats control the White House and the Senate and Republicans control the House. Democrats and Republicans are criminals engaged in an effort to make the rich richer and workers poorer.

  17. Butch1 says:

    The President is NOT on the same side as Sen Warren and would never have mentioned this. She is forcing the had of what the Congress and President should have been doing. She is embarrassing a lot of people and they do not like it. Too bad.

    It’s nice to see at least one real Senator with a pair of cojones and a spine and not afraid to speak up.

  18. cole3244 says:

    pres warren, sounds good to me how about you.

  19. Jesus Christ in a hidden envelope passed under the table, Batman:

    How else are these starving bankers supposed to get the lucre needed to bribe congresspeople to pass laws giving them even more graft to by off even more congresspeople in order to pass even more laws to….

  20. Just_AC says:

    hmmm, my comment disappeared. Ok, 83 Billion here will make up the 85 billion for the sequester! National problem solved.

  21. Just_AC says:

    hmm, 80 some billion dollars – isn’t that the sequestered dollar figure too? I’ve just solved the problem!

  22. Randy Riddle says:

    Yeah. I enjoy fantasizing about that alternate universe once in a while, too.

  23. SkippyFlipjack says:

    CHRIS IN PARIS: Who are the banks borrowing from? Is it entirely the Fed? If not, then this “$83 billion taxpayer subsidy” should be recalculated to reflect only the discount they’re getting on rates of money borrowed from the government — that’s the only money that comes out of taxpayer pockets.

  24. caphillprof says:

    Wouldn’t it be nice if after Sen. Warren does the heavy lifting the President in the evening would have a fire side chat with the American people in which he reiterated Sen. Warren’s exchange and ask the American people whether they agree with giving the Big Banks an $83 billion subsidy?

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