Reverse Bank Robbery (How taxpayers are financing the banks 'profits')

[rollingrock]

Sounds like a nice little scam, doesn't it?

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1) ...Citigroup may be able to prevent losses and boost the value of its government-owned stock because the government is picking up its bad debts...

2) ...In fact, much of the story of the return of bank profitability has this character of money in one pocket and out the other pocket. To make the story as simple as possible, banks can now borrow money short-term at near zero cost from the US Federal Reserve. The Fed has pushed rates to near zero in order to boost the economy. On the other side, banks can buy up US government bonds that are currently paying around 3.5% interest.

This means that we lend the banks the money that they lend back to us, albeit at a considerably higher interest rate. To take round numbers, let's say that the banks have borrowed $1 trillion from the Fed's various lending facilities. (The Fed's total loans are now over $2trn.) Suppose they pay an average interest rate of 0.2% on this money. If the banks then buy up government bonds that pay a 3.5% interest rate, they can pocket the difference of 3.3 percentage points. On a trillion dollars of lending, this will give the banks $33bn a year in net interest or profit. This is the extra money that the government is paying the banks to borrow back the money that it lent them through the Fed.

3) Of course this is not the whole story of the banks' return to profitability. We also have the shrewd traders like the Goldman Sachs crew. They take the money that they borrowed, either directly from the government or with the government's guarantee, and use it to speculate in items like oil and other commodities.

www.guardian.co.uk/commentisfree/cifamerica/2009/aug/31/banking-profits-us-economy

[CrispyQ]

1. ...

[rollingrock]

2. haha

Henry Paulson and Tim Geithner are modern day gangsters.