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The faux independence of the big banks

The ongoing Financial Crisis Inquiry Commission hearings are being conducted mainly in the past tense. The banks are done wobbling. They're in awesome shape now. They've paid back their TARP, and they never needed it in the first place. They don't need the government anymore, and the government needs to leave them alone.

Well, sort of. As Dan Gross explains, the banks aren't nearly so independent as they'd have you believe:

JPMorgan Chase, Goldman Sachs, and their peers are still benefiting hugely from significant post-crisis subsidy programs that boost their profits. I'm talking mostly about the Temporary Liquidity Guarantee Program (TLGP). This was a program started in the wake of the Lehman Bros. collapse to deal with the fact that banks were having a tough time raising short-term capital on decent terms. Under the TLGP, the Federal Deposit Insurance Corp., which is ultimately backed by the taxpayers, would guarantee debt in exchange for fees paid by the banks issuing debt.

The TGLP was ended to new entrants in June 2009 and thus far has gone without a loss. But the fact remains: Private companies were allowed to borrow massive amounts of money — $345 billion at the peak in May 2009 — on the public's credit. At the end of the third quarter, there was still $313 billion outstanding.


By Ezra Klein  |  January 13, 2010; 11:20 AM ET
Categories:  Financial Regulation  
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Next: How too-big-to-fail looked from the inside

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