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Tue Jun 19, 2012, 06:46 PM

 

Study: Mega bank JP Morgan Chase receives a $14 billion annual subsidy from the US government

When JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon testifies in the U.S. House today, he will present himself as a champion of free-market capitalism in opposition to an overweening government. His position would be more convincing if his bank weren’t such a beneficiary of corporate welfare.

To be precise, JPMorgan receives a government subsidy worth about $14 billion a year, according to research published by the International Monetary Fund and our own analysis of bank balance sheets. The money helps the bank pay big salaries and bonuses. More important, it distorts markets, fueling crises such as the recent subprime-lending disaster and the sovereign-debt debacle that is now threatening to destroy the euro and sink the global economy.

http://www.bloomberg.com/news/2012-06-18/dear-mr-dimon-is-your-bank-getting-corporate-welfare-.html

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Reply Study: Mega bank JP Morgan Chase receives a $14 billion annual subsidy from the US government (Original post)
Ghost of Huey Long Jun 2012 OP
snot Jun 2012 #1
aquart Jun 2012 #2
Egalitarian Thug Jun 2012 #3
Ghost of Huey Long Jun 2012 #4
bvar22 Jun 2012 #25
Woody Woodpecker Jun 2012 #27
bvar22 Jun 2012 #29
watrwefitinfor Jun 2012 #5
salin Jun 2012 #6
xchrom Jun 2012 #7
freshwest Jun 2012 #8
spanone Jun 2012 #9
dixiegrrrrl Jun 2012 #10
abelenkpe Jun 2012 #11
Autumn Jun 2012 #12
bhikkhu Jun 2012 #13
Angry Dragon Jun 2012 #15
bhikkhu Jun 2012 #17
Igel Jun 2012 #20
girl gone mad Jun 2012 #16
bhikkhu Jun 2012 #18
Jim Lane Jun 2012 #23
Igel Jun 2012 #21
girl gone mad Jun 2012 #24
truedelphi Jun 2012 #30
Angry Dragon Jun 2012 #14
RB TexLa Jun 2012 #19
truedelphi Jun 2012 #31
econoclast Jun 2012 #32
RB TexLa Jun 2012 #33
Kablooie Jun 2012 #22
Huey P. Long Jun 2012 #26
Quantess Jun 2012 #28

Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 06:59 PM

1. K&R'd!

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:01 PM

2. Take it back.

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:03 PM

3. But, but, but... THEY PAID BACK THE LOANS!1!1!!

 

This obscene shell game will bring the American, and thereby the world's, economy down.

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:12 PM

4. meanwhile...Republicans want food stamps cut by $2 billion a year

 

http://www.democraticunderground.com/1002830093

What a coincidence JP Morgan also makes over 5 Billion per year on the food stamps

A record 43.6 million Americans are using food stamps. JPMorgan’s segment that makes food stamp debit cards made $5.47 billion in net revenue in 2010.

http://www.rooseveltinstitute.org/new-roosevelt/food-stamps-jpmorgan-banking-industry-profit-misery

So they are going to cut back on 43 million Americans food money so JP Morgan can continue to rip US off for even more money on top of $14 Billion in subsidies.

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Response to Ghost of Huey Long (Reply #4)

Wed Jun 20, 2012, 05:03 PM

25. Unfortunately, 22 "Democrats" joined their ideological allies in the Republican Party.

Baucus (D-MT)
Bennet (D-CO)
Bingaman (D-NM)
Carper (D-DE)
Conrad (D-ND)
Durbin (D-IL)
Franken (D-MN)
Hagan (D-NC)
Harkin (D-IA)
Inouye (D-HI)
Johnson (D-SD)
Klobuchar (D-MN)
Kohl (D-WI)
Landrieu (D-LA)
Manchin (D-WV)
McCaskill (D-MO)
Nelson (D-FL)
Nelson (D-NE)
Pryor (D-AR)
Stabenow (D-MI)
Tester (D-MT)
Udall (D-CO)
Warner (D-VA)
Webb (D-VA

Until WE do something about this chronic betrayal from within OUR ranks,
we will not be able to do anything about The Republicans.

http://www.salon.com/2010/02/23/democrats_34/

Party Leadership CAN do something about Party Discipline,
it it wanted to.
Party Funds can certainly be dispensed to Progressive Primary Challengers,
IF Party Leadership wanted to do something.

SEE: White House support FOR Blue Dog Blanche Lincoln, Democratic Primary, 2010

...IF they wanted to.


You will know them by their WORKS,
not by their excuses.
Solidarity99!
--------------------------------------------------------------------------------------------------------------------------------

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Response to bvar22 (Reply #25)

Wed Jun 20, 2012, 05:12 PM

27. That one is overblown

 

Might as well delete this subthread. They voted correctly, IMHO.

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Response to Woody Woodpecker (Reply #27)

Wed Jun 20, 2012, 05:58 PM

29. Why?

...because of the "Farm Subsidy"?

Do you know what Minnesota, Iowa, and Wisconsin have in common?
Don't you think it is past time to let Big Corn Corporations make it on their own?
If not, how much longer do you think we should continue to subsidize the Billion Dollar Big Corn Corporations at the expense of the Hungry & the Poor?

YOU might think my comments are "overblown",
but I'm Sick & Tired of being continually Sold Out by "Democrats" protecting their BIG DOLLAR Single Source Donors on a rotating basis.

Why are "Democrats" soooo BAD at playing this game in Washington?
WHY is it ALWAYS the Working Class & the Poor picking up the tab for the conspicuous consumption of the RICH?




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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:14 PM

5. And the bastards and their lackeys are trying this very day to take food

out of the mouths of millions whose jobs they gambled away - starving not just them, but their children, too. They want 2 billion a year less in food stamps. How many babies will that (not) feed?

There are no words for the disgust.

Wat

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:16 PM

6. Really important article to read. I encourage folks to follow the link and read.

stunning.

Thanks for posting this.

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:25 PM

7. Du rec. Nt

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:28 PM

8. This is dynamite here. Will it make the nightly news?

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:28 PM

9. k&r...

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 07:43 PM

10. Study: *taxpayers* give Mega bank JP Morgan Chase a $14 billion annual subsidy.

there..fixed it.

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Response to dixiegrrrrl (Reply #10)

Tue Jun 19, 2012, 08:39 PM

11. that works for me

Wish the news would report it that way.

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 08:47 PM

12. It just gets more disgusting every day.

I hate these fuckers.

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 08:58 PM

13. An interesting perspective, but its not really a subsidy

unless you kind of look at it sideways and squint your eyes.

The article describes confidence in the banking sector that government backing allows as a "subsidy", letting them borrow at lower rates than they would otherwise. Then the money saved on interest payments on borrowed money is taken as income they wouldn't have earned otherwise.

Of course that not how it would work...a primary way banks make money is by borrowing money at one rate and lending it at a higher rate. The difference between the two is a fundamental ratio - if one side increases, so does the other - and the bank's income would be the same regardless of the "subsidy". The effect of removing government backing, assuming it raised interest rates for bank borrowing as the article says, would be a growth-stifling and inflationary increase in the cost of all borrowing, passed through to the economy as a whole.

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Response to bhikkhu (Reply #13)

Tue Jun 19, 2012, 09:32 PM

15. Then the government should just loan it to the people without

the banks acting as the middleman

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Response to Angry Dragon (Reply #15)

Tue Jun 19, 2012, 09:54 PM

17. That would be one way to do it

...though I think our political apparatus would have to be a little more evolved and responsible before it could be trusted to run things well.

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Response to Angry Dragon (Reply #15)

Tue Jun 19, 2012, 10:48 PM

20. Not relevant.

"The people" are already indemnified by the FDIC.

It's large creditors that are essentially insured or expect to be insured. They're the people that we'd want to take a haircut.

The creditors also probably wouldn't want their money back. It would still be earning interest. They just want to know that if they want their money back, they can get it back.

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Response to bhikkhu (Reply #13)

Tue Jun 19, 2012, 09:51 PM

16. No, Bloomberg got it right.

It is very much a subsidy.

sub·si·dy: a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive

Read the paper in full to understand just how massive this subsidy is.

With each new banking crisis, the value of the implicit subsidy grows. In a recent paper, two economists -- Kenichi Ueda of the IMF and Beatrice Weder Di Mauro of the University of Mainz -- estimated that as of 2009 the expectation of government support was shaving about 0.8 percentage point off large banks’ borrowing costs. That’s up from 0.6 percentage point in 2007, before the financial crisis prompted a global round of bank bailouts.

To estimate the dollar value of the subsidy in the U.S., we multiplied it by the debt and deposits of 18 of the country’s largest banks, including JPMorgan, Bank of America Corp. and Citigroup Inc. The result: about $76 billion a year. The number is roughly equivalent to the banks’ total profits over the past 12 months, or more than the federal government spends every year on education.

JPMorgan’s share of the subsidy is $14 billion a year, or about 77 percent of its net income for the past four quarters. In other words, U.S. taxpayers helped foot the bill for the multibillion-dollar trading loss that is the focus of today’s hearing. They’ve also provided more direct support: Dimon noted in a recent conference call that the Home Affordable Refinancing Program, which allows banks to generate income by modifying government-guaranteed mortgages, made a significant contribution to JPMorgan’s earnings in the first three months of 2012.

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Response to girl gone mad (Reply #16)

Tue Jun 19, 2012, 10:03 PM

18. Yes, the "expectation of government support" increases lender confidence

...so the banks can borrow at a lower rate than they would otherwise.

But you must see my point - a given bank might have (as an example) a fixed .005 markup between their borrowing and their lending costs, which would allow them to cover the risk of lending and overhead while still maintaining an operating profit. If the bank borrows at 3.5%, it lends at 4%. If the bank borrows at 4%, it lends at 4.5%, and so on. The rate itself has no effect on income - income is determined by the markup, which is worked out with great certainty and care to provide whatever is needed to keep operations profitable.

Again, the rate doesn't determine income, the markup on that rate does, and that has nothing to do with what Bloomberg is talking about.

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Response to bhikkhu (Reply #18)

Wed Jun 20, 2012, 12:30 AM

23. There's no basis for your assumption that the markup is fixed.

Using your example of a fixed 0.5% markup, you write: "If the bank borrows at 3.5%, it lends at 4%. If the bank borrows at 4%, it lends at 4.5%, and so on."

But if market conditions would allow the bank to lend out the full amount available at 4.5%, then if instead it's lending at only 4% (because the government has lowered the bank's borrowing costs), then the demand for loans would exceed the supply. In other words, some would-be borrowers who refused to pay 4.5% will be willing to pay 4%. In that instance, the bank won't woodenly keep lending at 4% until the money runs out, and then tell other loan applicants that the window is closed. No, the bank will instead calculate what rate (4.1%? 4.375%?) it can charge and still lend out all the money it wants to lend. It will happily up its markup from 0.5% to 0.6% or whatever, thereby increasing its profits.

I'll concede that there's probably some truth to your analysis to this extent: Because the government implicitly subsidizes more than one giganto-bank, it does affect the market conditions. When Citibank assesses the credit market, it's assessing a credit market in which Chase, Bank of America, etc. are also beneficiaries of this too-big-to-fail policy, which affects their lending decisions, thus in turn affecting what Citibank can charge. As a result, it's probably not a dollar-for-dollar effect. I don't know whether the authors of the quoted study considered this complication. If they didn't, their numbers may be on the high side. Nevertheless, that would only dampen the subsidization effect, not eliminate it.

In addition, the prospect of a bailout amounts to government aid to big banks as opposed to their smaller (mostly regional) competitors, which are less likely to be deemed too big to fail.

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Response to girl gone mad (Reply #16)

Tue Jun 19, 2012, 10:54 PM

21. No, they didn't.

It's an implicit subsidy.

"sub·si·dy: a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive."

In this case, it's a non-sum of money. No money changes hands annually from the Feds to JPM to ensure that the interest rates stay low. It's not granted to JPM because it's simply not in existence. There is no subsidy.

There is the implicit guarantee of a loan if JPM needs it. But a loan isn't a grant, and a loan from several years ago doesn't equal a grant this year.

The best you could do is argue that it's the forfeiting of a federal insurance premium, but it's a weak and incomplete argument. FDIC charges a fee for insurance, i.e., in exchange for guaranteeing depositor accounts. In this case, the Fed guarantees creditors' accounts. The difference is that in the event of a default, the FDIC actually pays out money that it knows it won't get back, charging to cover payouts as well as overhead on administration; the Feds loaned money, at interest, that they expected back, and the interest wasn't for overhead. The administrators are on the payroll anyway. The interest starts to look like insurance payments.

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Response to Igel (Reply #21)

Wed Jun 20, 2012, 01:40 AM

24. Not true at all.

Governments have stepped in on multiple occasions and many implicit guarantees were made explicit. Real money has changed hands and toxic debts have been transferred from private banks onto the public balance sheet. Try to keep current, this isn't news.

http://www.sourcewatch.org/index.php?title=Total_Wall_Street_Bailout_Cost

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Response to girl gone mad (Reply #16)

Wed Jun 20, 2012, 06:08 PM

30. Thank you for the explanation and citation. n/t

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 09:31 PM

14. Corporate welfare

I wonder how soon the republicans will start yelling about this?? ...........

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 10:25 PM

19. It's a calculated value of the effect of expected government support on the credit worthiness


and lowered borrowing cost due to that. Not an actual subsidy of cash given to the banks.


The same could be said about the benefits and income that come from having FDIC protection of deposit accounts.

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Response to RB TexLa (Reply #19)

Wed Jun 20, 2012, 06:10 PM

31. Nice explanation and citation regarding the word subsidy and how

Well this particular 16 billions of dollars fits into it. See Post 16 above yours.

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Response to truedelphi (Reply #31)

Wed Jun 20, 2012, 06:46 PM

32. Indeed NOT a "subsidy"

noun pl. sub·si·dies.
1. a direct pecuniary aid furnished by a government to a private industrial undertaking

In this case there is NO direct pecuniary aid. For those who know what that means ... The government isn't paying JPM 16 billion a year. No money is changing hands here.

Because OTHER PRIVATE COUNTERPARTIES BELIEVE that in the event of a meltdown the government would bail out JPM, these OTHER PRIVATE COUNTERPARTIES are willing to lend to JPM for less than they otherwise would.

The calculated difference between what they otherwise might charge JMP is the 16 billion a year.

Moreover Dodd Frank purports to end TBTF via the new special regulator and new resolution authority. So there is legislation that explicitly addresses the TBTF assumption made by counterparties. So there should not be an "implicit" guarantee assumed any more.

Unless you want to argue that Dodd Frank isn't in reality what it was marketed to be.

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Response to truedelphi (Reply #31)

Wed Jun 20, 2012, 06:50 PM

33. Except the funds aren't being granted in by the government. There are no government funds


in those figures. They are savings that come about because of the belief that the governemnt would come to the assistance of the bank if needed.

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Response to Ghost of Huey Long (Original post)

Tue Jun 19, 2012, 11:12 PM

22. Plus government pays for food stamps to supplement their janitor's poverty level salaries.

Just a little added perk we give them so they can save some extra pennies.

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Response to Ghost of Huey Long (Original post)

Wed Jun 20, 2012, 05:07 PM

26. Well, how about that. -eom

 

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Response to Ghost of Huey Long (Original post)

Wed Jun 20, 2012, 05:35 PM

28. Hmmmm

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