Tags: skin | Lehman | banks | mansions

5 Years Later, Big Banks Still Can't Fail

By Patrick Watson   |   Wednesday, 18 Sep 2013 07:44 AM

At this point in 2008, the corporate body of Lehman Brothers was still warm. Others on Wall Street were betting who would fall next. The answer turned out to be "No one."

Today, the big banks are bigger than ever. With Federal Reserve and taxpayer support, they are more profitable than ever, too. With so many millionaires, owning bigger houses than ever, The Wall Street Journal had to hire a full-time "Mansions" reporter to keep track.

Life is good when you can't fail.

This is the great economic irony of our time. The bankers and bank-funded politicians who lecture Americans about responsibility, self-reliance, sacrifice and "skin in the game" conveniently exempt themselves from all those principles.

In fact, today's top-tier banks escaped a Lehman-like fate only because the rest of us saved them. We bailed them out directly with taxpayer money, and indirectly when the Federal Reserve imposed zero interest rates on retirees and small investors.

Bankers live in mansions because they literally cannot fail. This fact is evident in their own financial statements. Wells Fargo (WFC), Bank of America (BAC), Goldman Sachs (GS), JPMorgan Chase (JPM), and a handful of others can borrow money at effectively the same interest rates as the U.S. Treasury can.

Interest rates are a direct function of financial stability. Smaller banks, private businesses and most individuals pay higher rates when we borrow. Unlike the Treasury and big banks, we might default on our debts. Goldman Sachs and the other "too big to fail" banks have a competitive advantage. Their near-zero default risk lets them borrow money at almost zero cost.

In other words, bankers have no "skin in the game." They are effectively subsidiaries of the U.S. government. They just won't admit it — and they don't have to follow the same rules.

Wall Street didn't steal this advantage. Politicians in both parties gave it to them. We the people are apparently OK with this, since we keep re-electing those politicians. So be it. We still can't ignore reality.

Let's call a spade a spade: The people living in those mansions pictured by The Wall Street Journal are "takers." They are well-dressed, highly educated, well-spoken welfare recipients. Just like more traditional welfare recipients, they live off the dole and think they deserve every penny.

So who pays the bills? Who "gives" while others take? If you still don't know, look in the mirror. The skin in the game is probably yours.

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