This a tail of two economies where the government and Federal Reserve have picked the winners and the losers. And now the big have gotten bigger.
The bailouts skewed the financial industry in favor of the big and powerful. Data from the FDIC show that big banks have the ability to borrow more cheaply than their competitors because the government won't let them fail. The increased size of the banking oligopoly has hollowed out the banking system. And with the lack of transparency of the TARP bailouts, there is no accounting demanded of these behemoths.
The banks are going the way of big oil. America is becoming a country "of the oligopolies, by the oligopolies and for the oligopolies."
Banks 'Too Big to Fail' Have Grown Even BiggerThe split between companies that can borrow and those that can't shows the extent to which any recovery depends on reviving the nation's ailing banks and squeamish credit markets. Until that happens, the vigor of the economy will remain in doubt.
At one extreme of Corporate America is a cadre of companies and banks, mostly big, united by an enviable access to credit. At the other end are firms, chiefly small, with slumping sales that can't borrow or are facing stiff terms to do so.
Some of the nation's largest banks could, in fact, emerge from the crisis stronger than they entered it. While they have suffered huge losses on complex financial products, and are still facing mounting loan defaults, they were stabilized with tens of billions of dollars of taxpayer money. In the second quarter, the seven largest commercial banks earned more than $14 billion, even as thousands of smaller banks were in the red.
Big lenders are currently enjoying an advantage in their "cost of funds" -- the raw material of a bank, which is in the business of borrowing cheaply and lending at a higher rate. The handful of banks with more than $10 billion in assets were paying 1.18% to borrow money in the second quarter, the FDIC said in data issued Thursday. By contrast, banks with $100 million and $1 billion in assets were paying 1.97%, a big difference in a business where tenths of a percentage point translates into millions of dollars in profits.
Halting Recovery Divides America in Two