The Federal Reserve has been going back and forth with reporting from Bloomberg regarding the massive bailouts and loans made to the financial sector during the crisis. What is rather astonishing is the ability to discuss trillions of dollars of loans made to largely irresponsible financial institutions with absolutely no oversight. Like an angry couple on Maury Povich, only an objective outsider can see how dysfunctional the relationship has become. All of this happened in the shadows. What is more astonishing is a large amount of questionable assets that were shifted from bank balance sheets are still sitting comfortably in the balance sheet of the Federal Reserve. This is not disputed. Profits at banks are on the rise but it is hard to lose money when you have unlimited access to taxpayer bailouts and the ability to dilute the currency of the nation. U.S. banks hold $9.7 trillion in deposits with a FDIC Deposit Insurance Fund (DIF) that currently has $7.8 billion. Do the math on that one.
A glance of U.S. banking data
Here is a nice snapshot of U.S. banking data:
Source: Bank Tracker
What is the most amazing fact is that over $9.7 trillion in deposits is backed by a measly $7.8 billion. This is like trying to stop a hurricane with a paper napkin. Most Americans are earning virtually nothing on their deposits at banks but what other options are available? Should they enter the highly volatile and opaque stock market? When a typical savings account is paying close to 0 percent it is hard to digest but the volatility of the stock markets for this entire year have rendered a nearly neutral result. Even money market accounts have fallen strongly since the recession hit:
“The typical money market account is down over 80 percent since 2006. It isn’t like inflation has suddenly disappeared or that our debt problems have gone away like dust in the wind. To the contrary the economy has gotten much more mired in a stagnating funk.”
Banks are back at making profits but it is hard to lose when you have unlimited taxpayer bailouts:
While the Federal Reserve was trying to cast doubt on the results published by Bloomberg, they failed to address the massive amount of “assets” that remain on their balance sheet.
Read the rest at My Budget 360