The big banks are not taking a rare legislative defeat lying down.
Days after President Obama signed into law a highway package that finally ended an egregious, 100-year-old subsidy for big banks, two of Wall Street’s favorite legislators want to attach a last-minute rider to the end-of-the-year omnibus spending bill that lessens some of the impact of that change.
From 1913 until last week, banks received a 6 percent annual dividend on paid-in stock they had to purchase to become members of the Federal Reserve system. This was initially provided as an incentive for membership with the Fed, but membership is now mandatory for national banks, and all banks must abide by the standards of membership.
It took 100 years and a desperate need to find some way to pay for this year’s highway bill for anyone to think to take away the incentive payments.
The highway bill deal reduced the annual dividend to the rate of interest on 10-year Treasury notes, capped at 6 percent. (The current rate is around 2.2 percent.) This change only affects banks with more than $10 billion in assets, but it saves the federal government around $1 billion a year.
Now, enter Republican Reps. Randy Neugebauer of Texas and Bill Huizenga of Michigan. The crux of their proposed rider on the omnibus bill is this: If banks can’t have their free 6 percent dividend, then they shouldn’t have to pay for any stock at all.
Right now, banks must purchase Fed stock equal to 6 percent of their total capital. But under the proposal, first reported by the Wall Street Journal, banks with over $10 billion in assets would be able to cut that to 3.5 percent of capital, and the Fed would have to return excess money to the member banks, estimated at $25 billion. The Fed would also be restricted from forcing banks to purchase additional stock in the future.
As it happens, that plan actually ends up saving the government money, since it won’t have to pay any dividend on the money it returns to the banks. That would save as much as $1 billion a year, according to the Financial Services Roundtable, a lobbying group that nevertheless supports the rider.
Other groups like the American Bankers Association are also pushing for the measure to be included in the omnibus. It’s not yet clear whether it will make it into the final legislative package, which will reportedly be released on Monday for a vote next week. Current government funding expires December 16.
Since banks established before 1942 don’t even pay taxes on the Fed dividend, it’s unclear why they want to give up a tax-free return equal to Treasury yields. But a revealing comment to the Journal from a bank lobbyist positions this mostly as a temper tantrum reaction to the dividend cut.
“This is not something that we were interested in pursuing or even thought about until the highway bill passed,” said Francis Creighton, executive vice president of government affairs for the Financial Services Roundtable. “If we’re not getting the dividend we signed up for … that led us to say, ‘Do we need this entire system anyway? Does it even make sense?’”
Neugebauer and Huizenga already tried to bail the banks out once, attempting to replace the dividend cut in the highway bill with a substitute funding source that raided the Fed’s capital surplus account instead. Their new rider again irks the Fed, which through a spokesperson warned “against making any changes to the fundamental structure and governance of the Federal Reserve System without a serious, thoughtful, and public discussion.”
Do we know which specific banks have benefitted from the rule? The rule I’m referring to is the banks that were members of the Fed prior to 1942 have a tax exemption to their share of the Fed stock dividends.
So a one-time payment of 25 billion to the banks yields a savings of 1 billion a year according to the sponsors of the legislation. We the taxpayers would get our stake back in 25 years, unless we have to bail them out again.
Henry Ford once said there would be a revolution by sunset if the people knew what was going on; he was wrong; people are no smarter than when they built Pyramids for the rich instead of their families. The Pope used to burn people alive for saying the world was not the center of the Universe and other things; well, the Pope is still in business and we have landed on the Moon. People are genetically flawed to accept a hierarchical system that does not benefit them. Money is the biggest fraud since god and even more effective. Canada, my homeland has the only public bank in the G20 and before 1974 used to create money interest free for infrastructure for all levels of governments; low debt, low inflation, high employment, a great deal. We sold out to the BIS and IMF and WB and the rest is history; the race to the bottom and deficits, not just debt as we go into a compound interest death spiral transferring wealth from those who produce it to the parasitic rentier class. The suckers will never figure it out as the mind control is better than ever. Doubt that; stop any American or Canadian on the street and ask them to explain “Fractional Reserve Banking” and you will get the same response……duuuu, whadyu mean.
“It is a little known fact that Ford would like to keep under wraps at all costs, but the Ford Motor Co. supplied vehicles, parts, and manufacturing power to the Germans before, during, and after world war 2.
The 1933-45 Order of the German Eagle, 1st Class, Neck Badge without Swords. one of the Nazi Regimes highest honours was awarded to Henry Ford. He refused to return same when pressed by US Government.”
Even a picture to prove it:
http://rarehistoricalphotos.com/henry-ford-receiving-grand-cross-german-eagle-nazi-officials-1938/
I wonder, if the Fed goes belly up as a result of this, does it mean there will be nobody to artificially constrain interest rates? I mean, the interest rates the banks pay, which are seen to be totally unrelated to those they charge us on our credit cards.
How can the fed go belly up. They have a license to print money. They can print as much as they want whenever they want
You mean create, conjure up don’t you. The average sucker does not even realize what is happening when he swipes his card. The money is instantly created through indebting yourself. When the CC bill is paid at the end of the month (hopefully), the money is destroyed. It’s very simple although there is a lot of obscuration and bafflegab to cover it up. It is so like religion, social control of the masses for fun and profit.
Yes of course the capital creation ability runs much deeper then just the printing press but I did not wish to overtly complicate the issue. I have done much reading on the Fed, fractional banking and all the smoke and mirrors involved.
But as long as I have my SUV, beer and football on the weekend and my guns why should I care what ‘they’ are up too. Give ’em hell Trump.
Oh and Hillary really care about me and my well being.
It’s so interesting browsing this site and seeing the liberal universe so ‘a Twitter’ about so many things.
It’s misinformation that you imply the Fed is or is part of the government. It is not. It is a private organization that works as an agent defining monetary policies and lays them down with impunity.
I’m not so sure a central banking system, usury, is the way to go. How others are so confident in the system is probably because it works well for the super rich. Everyone else is on the fringe. The installment of the Fed has assured these policies.
The Fed works for the super rich. Any benefits the rest of receive from it can be considered scraps discarded from the Fed’s table. The Fed, the ultimate big bank, needs the other big banks as it’s soldiers. The smaller banks are gone, thanks to the Fed system, eaten up by bigger banks, consolidating wealth at an unprecedented level. Once again, thanks to the Fed.
Obviously, I’m not a Fed fan.
Neither was Andrew Jackson. And he ended central banks in this country for many decades
“If we’re not getting the dividend we signed up for… that led us to say, ‘Do we need this entire system anyway? Does it even make sense?’”
Just keep saying that to yourselves.
The absurdity of it all is that banks get their money from the treasury to begin with, thus why should they be paid interest when it is called back? Rhetorical gymnastics, caveats, catch-22s, and conceptual parsing aside, our entire capitalistic economic system is a smoke & mirrors concoction whereby the “Rentee” elitist parasites can take an arbitrary medium of exchange and via sleight of hand, jargon, legalese, and a pseudo-science called “economics”, supposedly invent new wealth capable of endless self-replication by endlessly recycling debt and credit with any other visible means of creation! The only thing that ensures the strength of the Amerikan dollar as the world’s default currency and its convoluted notion of GDP and NDP is that it possesses the most horrendous weapons on the planet and has demonstrated time and again its willingness to employ them for the greater advancement and profit of its neo-liberal fascio-oligarch ideology!
up vote
…pretty much.
“Their new rider again irks the Fed, which through a spokesperson warned “against making any changes to the fundamental structure and governance of the Federal Reserve System without a serious, thoughtful, and public discussion.”Their new rider again irks the Fed, which through a spokesperson warned “against making any changes to the fundamental structure and governance of the Federal Reserve System without a serious, thoughtful, and public discussion.”
The FED is not federal and does not care about “public discussion” And, the ruse goes on.
That’s not what the linked article in the WSJ says.
The banks purchase Fed stock equal to 6 percent of their capital, but right now only have to turn over 3 percent of their capital to the Fed. In other words, they are drawing dividends on twice the money they put up. In the new proposal, they only have to put up 0.5% (rather than 3%), and so would be drawing dividends on 12 times the money they put up. If I could purchase one share of a company and draw dividends on 12 shares, I’d consider it a pretty good deal (even if, like the banks, I had to put if the rest ‘if requested’ by the Fed and even if the interest was only equal to the treasury bill rate).
So the statement that “a bank lobbyist positions this mostly as a temper tantrum reaction to the dividend cut”, should be taken with a grain of salt. Bank lobbyists sometimes have ulterior motives. If the banks throw a temper tantrum it’s in the expectation of being rewarded.
Guys & gal’s; I highly recommend this documentary .
http://topdocumentaryfilms.com/four-horsemen-documentary/
or via
http://www.fourhorsemenfilm.com/
Good that we are giving banks less of our money, but bad that the savings is being used to fund highways. Driving is extremely environmentally harmful, so there’s nothing to celebrate here. Now if the money were used to fund public transit and family planning, that would be good news.
These banks really have some nerve!
David Dayen has a certain Knack for grappling with
monetary/economic shenanigans, but there is a hybrid elephant/ass
in the “highway package” and
Mr. Dayen is focusing on the proffered navel lint removal.
Please tell us what else in in this phallic “package” –
or shall we wait for the other shoe(s) to drop?
You are falling for a distraction.
Which shoe should I be looking for. Enlighten me.
This bill has been dragging and dragging its way through
the palace of corporate manipulations for over a year and
now it becomes law when it includes a
VERY Uncharacteristic
restricting of the largess which the congresses
since, at least, the 1980’s has repeatedly stolen from the
public for the bankers private profits.
There have been numerous devious schemes floated
all year which would counteract this supposed
(and likely temporary) little setback for the banks.
Dayen has repeatedly shown that he doesn’t see
that the democrats and republicans are in collusion against
society for the benefit of their corporate owners.
So, this (2nd) focusing on a dubious aspect of a much larger
bill means that he is not really examining what this
distracting maneuver is meant to keep people from finding
in this bill.
There was a possibility that the country of origin labeling
on certain cuts of meat might get hidden within this bill
because the congress was being threatened with
sanctions by the World Trade Organization as part
of the shackles of NAFTA.
Do you know if that removal was included?
What other scheme of corporate domination was included
in this fake “highway” bill?
The devil is in the details and, so far,
Dayen has only focused on the one which is clearly
uncharacteristic.
BANKS: “This is highway robbery!”
Good, they finally got their comeuppance, largely as the result of the economic conditions they themselves created.
I read this article immediately after reading Liliana’s new article, and my immediate takeaway is that the death penalty should be reserved exclusively for bankers, and it should be applied to all bankers without exception.
Its weird how Obama seems to try it but Wallstreet still catches him with these things. The big banks are still in control and thats not going to change soon.