Record Bank Profits: Good News, Bad News
By Shlomo Maital
Dear readers, you’re probably tired of the old ‘good news, bad news’ format. But there’s no other way to explain American bank profits.
The good news: The net income (profit) of the six biggest American banks (J.P. Morgan, $6.5 b.; Wells Fargo, $5.5 b., Citigroup, $4.2 b., Bank of America, $4.0 b., Goldman Sachs $1.9 b., Morgan Stanley, $1.0 b.) in the 2nd quarter of 2013 (April May and June) totals $23.1 b. Note: that’s for THREE MONTHS. For a whole year, multiply by four: over $100 b.!
The bad news: The banks are raking in the money again, back to what they did before 2008, before the crash, making piles of money mostly from ‘nostrum’ trading (buying and selling assets for their own accounts), taking advantage of near-zero interest rates that they pay when they borrow, charging relatively high rates to us poor customers. Big-bank profits are back to what they were before the crash, in mid-2007. Way to go, banks!
The good news: Because the banks are making so much money, efforts of U.S. Treasury Secretary Jacob Lew, and others, to re-enact a version of Glass Steagall (putting a Chinese wall between commercial banking and investment banking, thus keeping banks from illicitly mixing the two, at our expense) are more likely to succeed. The banks are strong, making money – they cannot plead the legislation will ruin them. Lew is talking tough.
The bad news: The banks are back in the drivers’ seat. When Fed Chair Ben Bernanke just HINTED he MIGHT at some distant point in the future MAYBE possibly just a tad raise ..perish the thought….interest rates, but ONLY if unemployment fell, GDP boomed, and Pope Francis went on tour with the Rolling Stones…. Wall St. bashed the price of stocks down, so fiercely, that Bernanke had to crawl to Congress and explain he was …misunderstood. He basically sang that old Animals song, “But I’m just a soul whose intentions are good. Oh Lord, please don’t let me be misunderstood.” There is no way, he promised, that the Fed is going to help the banks break their permanent addiction to infinite quantities of near-zero-interest-rate money. The Fed will continue to buy $85 b. worth of bonds every single month for the foreseeable future. Buying bonds raised their price and thus lowers their yields.
If you find all this very tiresome, believe me so do I. There seems to be no possible way that we the people can get control of our destiny back into our hands, and the hands of our leaders, away from the banks and Wall St. With big-bank profits back to their previous highs, before the crash, we the people will probably fall asleep again – until the next big crash, until the next bank cries that it is “too big to fail”. We ordinary people may be hooked on Ritalin (see previous blog). But the banks are hooked on cheap money.