Congress to Eliminate Billions in Wall Street Subsidies: Fund Repair of Nation’s Hwys

[GMDino]

Can this be true?

http://usuncut.com/politics/congress-to-eliminate-billions-in-wall-street-subsidies-to-fund-repair-of-nations-highways/

Quote:Both parties of Congress are in agreement on diverting billions in Wall Street subsidies to rebuild America’s crumbling infrastructure. If you’re by a window, look outside for flying pigs.

Currently, the Federal Reserve pays out a 6 percent annual dividend to roughly 2,900 banks — JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo net approximately $350 million apiece each year from the dividend. These banks own stock in the Federal Reserve as a means of becoming members of regional Fed branches around the country, and unlike other stocks, the big banks are guaranteed to never lose money on their investment in the Fed. For years, the Congressional Progressive Caucus has proposed reducing that dividend to 3 percent in order to pay for repairing American infrastructure. After lying dormant for over a year, it appears that idea has now caught on with Republicans as well.

According to Bloomberg, Senate majority leader Mitch McConnell (R-Ky.) recently told a group of Wall Street executives at a Financial Services Roundtable event that he wouldn’t use his power to remove a new rule that allots funding for federal highways by reducing that dividend to 1.5 percent. The House is now weighing whether or not to back the dividend reduction before highway funding runs out at the end of October. Should the proposal go through, America’s highways would benefit from an additional $17 billion in repairs over the next ten years.


Now, Wall Street is in panic mode.

“The idea that going forward that we are going to pay for our nation’s infrastructure on the backs of one industry sector is a really flawed public policy,” said American Bankers Association president Rob Nichols.

While Fed chair Janet Yellen has taken the banks side, saying she believes the policy “could conceivably have unintended consequences,” Washington prognosticators believe the banks will ultimately have to sacrifice their Fed dividend, and possibly more federal handouts further down the road.

“The industry is in a very dangerous spot because it is a pot of gold,” Karen Shaw Petrou, managing partner of Federal Financial Analytics, told Bloomberg. “With the general political climate I don’t know a lot of people on Capitol Hill that like banks.”

The proposal is likely to pass, as past Republican proposals to fund infrastructure repair included a tax repatriation holiday — allowing corporations to bring back some of the $2.1 trillion stashed in overseas tax havens back to the U.S. at a 5 percent rate rather than a 35 percent rate — something President Obama has promised to veto in the past. As I previously wrote in The Guardian, the only result that came out of past attempts at repatriation was mass layoffs of workers, while corporations used the repatriated cash to buy back their own stock, driving up the value of the options owned by executives.

Bad of an idea as it is, repatriation still attracted the support of Wall street-backed Democrats like Chuck Schumer, and corporations have lobbied Rep. Paul Ryan (R-Wisc.), the House Ways and Means chairman, to include repatriation in a tax reform package. However, lawmakers predicting an Obama veto are rejecting the idea of repatriation for now and are gravitating toward a solution for America’s highways they know Obama will sign by the end of the month.

The dividend cut has already been included in the Senate’s compromise bill, which will fund highways over the next 3 years. That bill passed by an almost two-thirds margin in July.

Damn progressives!

[*michaelsean*]

Normally I'd be against this, but we need a new bridge.

[Au165]

The roads ain't going to fix themselves....

[Belsnickel]

Just for a more regularly viewed news agency: http://www.wsj.com/articles/proposal-would-use-some-fed-bank-dividends-for-highway-funding-1437518194

[GodHatesBengals]

Wow. Republicans are gonna pass a good bill and they've even agreed not to lace it with garbage policy?

I guess they deserve a pat on the back for doing their jobs for once.

[Belsnickel]

(10-09-2015, 03:49 PM)GodHatesBengals Wrote: Wow. Republicans are gonna pass a good bill and they've even agreed not to lace it with garbage policy?

I guess they deserve a pat on the back for doing their jobs for once.

Wait until we see the riders...

[JustWinBaby]

Ehhh, I think it's more properly viewed as instituting a tax rather than ending a subsidy, because what's actually happening is the govt/Fed saying "we're going to pay you a lower interest rate on the money we've forced you to lend us".

As the WSJ points out, the member banks are legally mandated to capitalize the Fed. This stock is essentially worthless, because they can't sell or trade it or even borrow against it. That capital is money they would otherwise lend out and earn a return on, so the dividend was always recognized as a modest return on that "investment".

I don't really have an issue with it. Just laughing at how any time Washington wants to increase corporate taxes, they try to obfuscate the issue by couching it in terms of ending "handouts, welfare and subsidies" - none of those terms are very accurate, when someone is already paying taxes the practical reality is simply lowering or raising their taxes. Only in the bizarro world of Nancy Pelosi is taking LESS money from me equivalent to giving me a handout.

[JustWinBaby]

I should add that corporations increase/lower their dividend all the time. And in a low interest rate environment, borrowing costs are lower and banks also aren't earning the same higher interest rates on loans. So in that regard, there's nothing particularly extraordinary or unusual about that 6% dividend floating with the economy.

That said, it's not that simple with banks because what they earn is actually based on spreads. Typically their margins decrease in rising rate environments and increase in falling interest rate environments, and are otherwise fairly stable.

In other words, this is really an increase in the cost of membership (which has its privileges). The dividend is kind of a wonky concept, because in reality the cost of that capital to the banks is just what they pay in interest on deposits (which is 2% on a short-term cd's, but practically nothing on cash - whatever that averages out to). And seems like reserve requirements and the fed funds rate would matter more to margins and how much they can lend.