How the Banks Are Posting Profits
It sure seemed fishy to me that banks are suddenly declaring profitable quarters after being on the brink of collapse just a few months ago.
Here’s how they are doing it:
Goldman Sachs, which is posting a $1.81 billion profit for the first quarter is in a rush to repay bailout funds. To most, this would appear that taxpayers are off the hook. If only…
Through a little talked about program, the Federal Deposit Insurance Corporation (FDIC) lets banks issue debt cheaply, as the deals are backed by the FDIC. So far, this FDIC backed debt tallies up to approximately $300 billion.
Goldman Sachs alone has issued $28 billion in debt that is backed by the FDIC.
There may be an upside to this. The FDIC is charging for this service and it has taken in nearly $7 billion in additional fees related to this program. The idea is that these fees will cover any defaults by the banks.
That all sounds good and dandy, unless there are major defaults. If that happens, it will most likely deplete FDIC reserves, which will send FDIC to Congress to request funds from the U.S. Treasury.
At the end of the day, if things go good, they will go great. If things go bad, taxpayers will likely be on the hook for a lot more money.
Time will tell…
Source: U.S. Program Lends a Hand to Banks, Quietly [NY Times]
Tags: Bailout, FDIC, Goldman Sachs
- About Jesse Barron
- I am an Annapolitan and founder of the Annapolis Anchor. I love Annapolis and am proud to call it home. This great city has a lot to offer, which is why I founded this blog. I appreciate each of our readers and always strive to deliver relevant information in an easily digestible format.
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April 15th, 2009 at 5:23 pm
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