Profits up, Bonuses up, memory Lost: Banking as Usual
by Benjamin on July 20, 2009
The financial crisis is officially over and forgotten about as banks post a profit for the second quarter of 2009: Goldman Sachs ($2.7bn), J.P. Morgan ($2.7bn), The Bank of America ($3.2bn) and Citigroup ($1.6bn), all pushed their stock prices up and started talking about increasing pay and giving great big bonuses to their very talented bankers.
Some of them are also patting themselves on the back for having the strategic vision and ability to not only weather the storm, but to come out stronger… So what doesn’t kill you, makes you stronger and causes temporary amnesia it seems.
The Federal government spent some $700bn on “shoring up the banking sector“, meaning that the total net profits posted by the big banks is a piddly 1.5% of the money injected to cover their own losses, so lets not get ahead of ourselves just yet. Accounting for all that money, the Inspector of the Troubled Asset Relief Program (TARP) has just released this report: Noting that banks have reportedly spent a large chunk of the money available. More specifically, 43% bolstered their capital cushion, 31% invested elsewhere, 14% repaid debt and 4% made acquisitions – although this is based solely on what the banks told the commissioner, there has been no oversight, of course.
Goldman and J.P. Morgan have repaid on their commitments to TARP, but they wouldn’t be around had it not been for TARP in the first place. Doubts remain how much of the system would. Goldman in particular netted a nice round $125bn in relief, so before they prepare to pay a $900,000 average salary this year, maybe they should try and read last years newspapers.
Then again, what’s the point? It seems the newspapers, media and stockmarkets have also all forgotten what happened and who ended up paying for it. It wasn’t the bankers who paid – even the head of Fannie Mae is in fact the Inspector of TARP by now – so little hope of the government taking much charge. So there you have it. Short memories and the markets are back to their usual short term behavior. Paging Dr. Minsky and Dr. Keynes.
Tip of the Hat to Dave Shukla for pointing me to this FT article on the TARP report in the first place.
Tags: Banks, Bonus, Financial Crisis, Financial Stimulus, Market, Short Term
Just finished re-reading Minsky’s “Stabilizing an Unstable Economy.”
Could someone please send copies to media financial reporters who report nothing but Chicago blather as definitive facts?