Wednesday, December 16, 2009

Why big banks are bad for the economy

Read this article. Here are some key points:


a) The big banks want to pay back the bailout money to be free of the pay caps and other restraints.
b) Their profits still come mostly courtesy of taxpayers. Their trading earnings are financed by more than a trillion dollars’ worth of cheap loans from the Federal Reserve, for which some of their most noxious assets are collateral.
c) They benefit from immense federal loan guarantees, but they are not lending much. Lending to business is very tight.
d) The whole system has grown more concentrated, as many big banks have taken over other banks. The growth of the biggest banks ensures that the next bailout will have to be even bigger. These banks will be more likely to take on excessive risk because they have the implicit assurance of rescue.