big banks subsidy eric holder too big to jail

Wall St Jrnl -- Georgists Merit Page One Coverage
henry george land tax

Bloomberg -- Taxpayers Give Banks $83 Billion a Year

For some reason, the business press revealed how crooked banks are and reminded readers of a real reform. We excerpt three 2013 articles from: (1) Bloomberg, Feb 20, on subsidy by the Editors; (2) Reader Supported News, Mar 7, on too big to jail by R. Borosage; and (3) Wall St Jrnl, Mar 17, on Henry George by IJ Dugan.

by Bloomberg Editors, by Robert Borosage, and by Ianthe Jeanne Dugan

The largest U.S. banks arenít really profitable at all The billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers.

Itís crucial to how the big banks present such a threat to the global economy.

The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail.

The rate at which they borrow is lower by 0.8 percentage point. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, itís tantamount to the government giving the banks about 3 cents of every tax dollar collected.

The top five banks -- JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. -- account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits. In other words, the banks occupying the commanding heights of the U.S. financial industry -- with almost $9 trillion in assets, more than half the size of the U.S. economy -- would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.

The financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy. Left unchecked, the superbanks could ultimately require bailouts that exceed the governmentís resources.

To read more

JJS: Itís actually legalized robbery.

Bankers are not disciplined by the market. They know their losses are covered, while they pocket the winnings. They have multi-million dollar personal incentives to leverage up, use other people's money to make big bets on high risk operations that offer big rewards.

Big banks committed routine fraud in peddling mortgage securities they knew were garbage, trampled basic property laws, laundered money from Iran, Libya, and Mexican drug lords, conspired to game the basic measure of interest rates and more. Yet, time after time, the Justice Department and regulatory agencies settled for sweetheart deals, with no admission of guilt, no banker held accountable, and fines that were the equivalent in earnings of a speeding ticket to the average family.

Yesterday Attorney General Holder stated openly what was already apparent. The Justice Department believes that Too Big to Fail Banks are Too Big to Jail.

Bankers trample the laws, mislead the regulators, and defraud their customers, bolstered by the confidence that the laws will not apply to them.

Putting a few bankers in jail and holding them personally accountable for their frauds would do much to bring sobriety back to Wall Street.

To read more

JJS: Most wannabe reformers urge us to regulate and break up the banks. However, weíve had rules and regulators and you canít turn back the clock. If you broke up the banks and did not change the conditions under which they mega-merged before, your efforts would be Sisyphean; youíd never get off the treadmill.

To change the conditions, you must prevent bankers from getting the value of land, as they do now via mortgages. Thatís what makes them so rich and powerful, all that money for nothing.

At least some people try to keep site rent out of Wall Street and recirculating on Main Street.

Henry George's main idea was that governments should have just one taxóon land.

About 20 towns in the U.S. have adopted the land value tax. In Australia the concept is widespread, and it has surfaced in Taiwan.

Milton Friedman called it "the least bad tax." In the U.K., Winston Churchill endorsed the idea. Now, more than 100 years later, Parliament is scheduled in April to debate a bill to explore a land value tax.

To read more

JJS: Georgists have not made much progress and probably wonít make much more. They seem as wrong about social change as they are right about human economies. Typical of true-believers.

If what you're doing does not work, at least try what works for others. That means figure out how to restate your proposal in terms that resonate with a critical mass of society. It means target the ones most likely to be receptive. It means learning to adapt as you go along. It means the customer is always right.

None of these are secrets. Itís what works for other movements and for entrepreneurs. But just as the world does not listen to Georgists, Georgists do not listen to researchers of social change. Ah, humans!


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the ďLand RightsĒ course, click here .

Also see:

Bail Out The Banksters?

Dissent From a Fed Member, Cato Scholar, & UK Press

Bailouts Have Started Pushing Up Prices

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