STOCK MARKET WATCH -- Monday, 27 July 2015

[Demeter]

14. The Yellen Subsidy: Fed Chair Pumps for Keeping Financiers Fat Over Filling Potholes

http://www.nakedcapitalism.com/2015/07/the-yellen-subsidy-fed-chair-pumps-for-keeping-financiers-fat-over-filling-potholes.html

The last few years has witnessed a rising tide of academic studies that have concluded that financial systems in advanced economies like the US have become outsized and are a drag on growth. One of the most recent and particularly devastating pieces came out of the IMF. That study found that Poland’s banking system was at the optimal level of product sophistication and penetration.

Since the financial services industry also so heavily subsidized that it should not properly be considered private enterprise, these articles are an indictment of how the sector operates. Banks should be regulated like utilities, or at least have their subsidies greatly reduced.

Yet the Fed is firmly against taking even mild steps to rein in hypertrophied banks, and no less that Janet Yellen herself acting as subsidy-shill-in-chief.

Budgeteers have woken up to the fact that banks get a difficult-to-justify perk from membership in the Federal Reserve system, that of getting 6% annual dividend on the preferred stock that they bought at the time they joined. A draft bill by Senate Majority leader Mitch McConnell includes a provision that would cut the dividends to member banks with more than $1 billion in assets from 6% to 1.5%. He’s proposing to use it to help shore up the highway trust fund.

The Wall Street Journal describes how the banks are really unhappy about this plan...

WHEN ARE THE BANKS EVER HAPPY? MORE AT LINK