MacroScope

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.

Bernanke, who has argued Dodd-Frank financial reforms have made it easier for regulators to shut down troubled institutions, questioned the study’s validity.

“That’s one study Senator, you don’t know if that’s an accurate number.”

Here’s more of the rather heated exchange:

Bernanke: “The subsidy is coming because of market expectations that the government would bail out these firms if they failed. Those expectations are incorrect. We have an orderly liquidation authority. Even in a crisis, we, in the cases of AIG for example, we wiped out the shareholders…”

Warren: “Excuse me, though, Mr. Chairman, you did not wipe out the shareholders of the largest financial institutions, did you, the big banks?

At first glance, Germany appears to be feeling the global economic downturn harder than many of its European peers: Industrial output fell by nearly a quarter on the year in February — taking a bigger hit than Britain, France and even Italy — and economists expect the economy to contract by as much as 7 percent this year.

Yet two government policy measures are helping insulate ‘Otto Normalverbraucher’ (Joe Public) from the full impact of the downturn: ‘Kurzarbeit’, or short-term work, and the ‘Abwrackpraemie’ — a ‘cash-for clunkers’ car subsidy plan.

By taking advantage of legislation that promotes shortened　hours, many German firms have avoided lay-offs, helping limit a　rise in the unemployment rate, which now stands at 8.1 percent.　And the car subsidy has given a boost to the auto sector, to　which close to one in five jobs are linked in Germany.