The big fees that banks charged to help Build America


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Did Goldman Sachs and other banks unduly profit from federal bailout programs?

It is an ongoing debate, but this week the issue has been focused on the involvement of Goldman and other banks in the sale of so-called Build America Bonds -- municipal bonds that were created and subsidized by the federal government to provide stimulus to the economy.
This morning, the Wall Street Journal came out with a story stating that banks have made nearly $1 billion in fees from underwriting these bonds. This followed on a story from Bloomberg last fall, which noted that the banks were charging higher fees to underwrite these bonds than they do on other municipal bonds. In the largest single bond issue, California paid $50.9 million in fees.


Goldman, one of the largest of the Build America underwriters, has run advertisements touting its role in advising municipalities -- but it has remained silent on the fees it charged. Today Sen. Charles E. Grassley (R-Iowa) released the letter he received from Goldman Chief Executive Lloyd Blankfein, explaining the fees.
Blankfein noted that so far Goldman has taken in $54 million for its work in selling Build America Bonds. Blankfein acknowledged that the rate Goldman charged for this work was indeed higher than the rate it charges for most municipal bonds (.6% to .9% of the loan versus .5% to .6% for a normal municipal bond). He said this was because the Build America Bonds were “new products” while other municipal bonds “have existed for decades and are well known to investors.”

Blankfein said the fees were now dropping, but he does not apologize for them -- instead he says that Goldman is “proud of our history advising and financing state and local governments.”

It is, as yet, unclear if this will address Grassley’s concern that “American taxpayers are subsidizing larger underwriting fees for Wall Street investment banks, including Goldman Sachs.”

-- Nathaniel Popper

Chip Chipman / Bloomberg