bloomberg.com
‘Wealth Transfer’
One of those subsidies is the $350 billion that savers forgo each year because the Fed keeps interest rates near zero, according to Petzel’s calculations. While banks can borrow at close to zero from the Fed, they lend to consumers and corporations at almost 5 percent, or to the Treasury at 2.5 percent, and they get to keep the difference.
“The huge wealth transfer from fixed-income pensioners to the banks has helped the banks repay TARP,” Petzel said.
The government and the Fed took on more risk than just TARP during the crisis, which isn’t reflected in the program’s cost, said Nomi Prins, a former Goldman Sachs managing director and author of the 2009 book, “It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.”
According to Prins’s tally, the money plowed into the financial system to prop it up peaked at $19.4 trillion. Banks have benefited from that cash, which helped keep prices of mortgage securities, house prices and other assets overvalued, Prins said in an interview. Even though some of the support has been withdrawn, part of it will likely be lost, such as the hundreds of billions of dollars put into Fannie Mae and Freddie Mac, she said.
“These are all indirect subsidies the banks got,” Prins said. “So the TARP gains touted by the Treasury are only true if you ignore all the other costs.” |
