Just how big is the benefit that too-big-to-fail banks receive from their implicit taxpayer backing? Federal Reserve Chairman Ben Bernanke debated just that question with Massachusetts senator Elizabeth Warren during a recent hearing of the Senate Banking Committee. Warren cited a Bloomberg study based on estimates from the International Monetary Fund that found the subsidy, in the form of lower borrowing costs, amounts to some $83 billion a year.
After financial firms slashed hundreds of thousands of jobs in 2007 and 2008, the bloodletting slowed in 2009 as major banks rebounded from the financial crisis. Even though firms like Goldman Sachs Group Inc and JPMorgan Chase & Co reported billions of dollars in profit, they still did not announce major hiring initiatives.
Joseph Tibman was a senior banker at Lehman Brothers for 20 years and is now the author of “The Murder of Lehman Brothers, An Insider’s Look on the Global Meltdown”. Tibman writes under a pseudonym to preserve his ability to work in finance. The views expressed are his own.
Economist James Hamilton was pretty offended by the rough treatment of Federal Reserve Chairman Ben Bernanke last week at the hands of some U.S. politicians. But when he put up a defense of the Fed chief on his blog, he got an earful from readers who were critical of the U.S. central bank and suspicious over its role in the financial crisis and last year’s bank bailouts.