Sunday, October 04, 2009

The Upper Hand

Dean Baker has an interesting article about the full cost of the TARP as applied to the biggest banks. His analysis is based on the cost of funds to the biggest banks and to smaller banks as published by the FDIC. Based on data since 2001 - which Baker acknowledges may not be typical in the long run - smaller banks pay .09 percentage points than do the biggest banks. True, that's a small differential. But we're dealing with very big numbers here. It adds up to a subsidy of $6.3 billion a year. Not exactly chicken feed. It's almost one-third of what the federal government spends on Temporary Assistance to Needy Families and better than 20% of what we spend on foreign aid.

It turns out that this differential is also big money when it comes to the profits of these biggest banks. On average, it amounts to 9% of profits. But for Capital One, for example, it's more than that; it's 30%.

Not a bad deal.

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