“Ben Bernanke was testified before the Senate Banking committee today, and for the most part, things proceeded as usual.
Until Elizabeth Warren took the mic.
Senator Warren grilled Bernanke on ‘too big to fail’ and the subsidy economists have calculated big banks get from the American tax payers through preferential borrowing costs. \
Here’s what she said (via Bloomberg):
“Now we have a double problem which is the big banks… have gotten bigger and at the same time… investors believe with too big too fail out there investors that it’s safer to put your money into the big banks and not the big banks, effectively creating an insurance policy for the big banks…. Last week Bloomberg did the math on it and came up with the number $83 billion, that the big banks get in what is essentially a free insurance policy… So I understand that we’re all trying to get to the end of TBTF, but my question Mr. Chairman is, until we do, should those biggest financial institutions be paying the American tax payer that $83 billion subsidy they’re getting.”
Bernanke responded that those subsidies are coming from the market’s expectation that the government will bail out banks, when it reality, the government has figured out a way to wind them down. He also added that the government wiped out the shareholders at AIG.
To which Warren countered, “excuse me Mr. Chairman but you did not wipe out the shareholders at the big banks… Whatever you say, Mr. Chairman, $83 billion says there will be a bailout for financial institutions.” …”
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