During a Senate Banking committee hearing today, Sen. Elizabeth Warren (D-MA) grilled Federal Reserve Chairman Ben Bernanke on whether Wall Street banks should have to pay back U.S. taxpayers for the implicit funding advantage those banks receive by virtue of being viewed as “too big to fail.” According to a Bloomberg News study, big banks are essentially subsidized by about $83 billion per yearbecause investors anticipate that those banks will be saved by the government if they get in trouble.
“These big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year simply because people believe the government would step up and bail them out. If they are getting it, why shouldn’t they pay for it?” asked Warren:
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. Andthese 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?
BERNANKE: I think we should get rid of it.
Too big to fail
Gee, I’m getting to really like that lady.
Just saw Bernanke’s end reply. I assume he’s kicking the can down the road. The only way to get rid of ‘it’ is to let the fuckers fail; but they’re too big to fail right now. So . . . I guess we’ll be seeing a ten-year plan to get banks small enough to drown in a bathtub? Until that time though, I guess we’re supposed to foot the bill. Makes Warren’s proposal sound even better.
BERNANKE: I think we should get rid of it.
WTF does that mean?
And if he believes in “getting rid of it”, why hasn’t he taken any steps to “get rid of it”?
“Essentially subsidized” is like being sort of pregnant. The Bloomberg premise is a stretch. The investors are making a fool’s bet. This “too big to fail” line is a one off con job. The next liquidity crunch generated by bad paper will be so politically toxic that a bail out is absolutely impossible. The magnitude of this scrip is beyond anything the Fed could paper over. The next event is the big one and it will cause a depression. History will find that the turning point was Holder’s refusal to prosecute.