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Wall St. Profiting From Stimulus Provision

March 10, 2010 - by Donny Shaw

A couple weeks ago, as Congress was debating whether or not to reauthorize the “Buy America Bonds” program that was created in the stimulus bill to help struggling state and local government borrow money more cheaply and create new jobs, Goldman Sachs ran an ad in the print edition of Politico pushing for the reauthorization to pass.

That got some members of Congress thinking – just how much taxpayer money are the big bailout banks keeping as profit from dealing in these bonds?

The answer is now in (WSJ):

Wall Street firms have received fees exceeding $1 billion in less than a year selling “Build America Bonds” meant to spur jobs in struggling cities, often charging municipalities higher costs than for traditional bond deals. […]

The underwriting fees come as Wall Street continues to recover even as many municipalities remain in poor financial shape.

The Wall Street fees are “surprisingly high,” says Edward Prescott, a Nobel-prize winning economist at the Federal Reserve Bank of Minneapolis and a professor at Arizona State University.

The banks confirm charging higher Build America fees, but say the costs are coming down as the bonds become more popular. Bank officials say the higher fees are justified because they are working harder to sell the bonds to investors who wouldn’t traditionally buy municipal debt, such as pension funds, insurance companies and foreign investors.

Goldman Sachs Group Inc. is the top seller of Build America Bonds, with $9.79 billion in sales, according to research firm Thomson Reuters, followed closely by J.P. Morgan Chase & Co., Citigroup Inc., Barclays PLC, Bank of America’s Bank of America Merrill Lynch and Morgan Stanley.

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