Must reading at Bloomberg, about the extent to which the Fed subsidized the too big to fail banks back at the time of the crash, putting to rest the oft told lie that many of these banks didn’t want the Feds money and paid it back as soon as they could. The amount of the bailout was staggering, more than enough to have financed a real stimulus package that, along with nationalizing those very banks, would have gotten us on the road to a real recovery:
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
On a personal level I was truly gratified to read that Wells Fargo was among the banks on the dole:
The six — JPMorgan, Bank of America, Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley — accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment- services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. The daily debt figure excludes cash that banks passed along to money-market funds.
Why do I care about Wells Fargo, in particular? Well, back in real time I posted something unflattering about Wells Fargo, about which I received 6 comments, all defending Wells Fargo, some claiming the bank only took the money because the government asked it to do so. To put things in perspective, that’s six more comments than an average post gets, or, stated as a percentage, that’s ?% more than the typical post gets. It was all highly suspicious and certainly looked like the Wells Fargo was scouring even the internet backwaters to defend itself.
I must take issue with one thing in the article, which I think is misleading, though not intentionally so:
Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.
This is in the context of alleging that the banks have only gotten bigger with more outsize pay packages, both of which may be true. But using an “average” figure likely understates the problem. As with society at large, the likelihood is that the increases in pay are going to the top echelons at the banks, and that if you took the median figure for the employees, it likely falls far below that $126K figure. That only make sense because you can pack a lot of “average” pay packages into one CEO package, meaning a whole lot of employees have to be below average in order to yield the average figure. (As has often been pointed out, if Bill Gates walks into a bar the average net worth of the people in the bar skyrockets, but none of the other bar patrons feel suddenly enriched) The average pay at these banks is higher than the national average, quite likely, because the financial industry is the only industry in this country that the financial industry hasn’t destroyed, so it’s where the money is. There’s more to spread around among the (yes, I’m going to say it) top 1%. It’s not right to imply that the tellers, security guards, etc., at these banks are cashing in.
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