The big idea behind the bank bailout was that the economy would recover when banks got back to lending, as we were told early in this administration by Larry Summers. How is that coming along? Second quarter financial reports of Citigroup (page 3), Bank of America (page 9) and JP Morgan Chase (page 2) tell the tale.
Here are the figures for corporate and consumer loans.
| Lender/ Type | Fourth Quarter 2008 | First Quarter 2009 | Second Quarter 2009 |
|---|---|---|---|
| Citi Consumer loans | 519,673 | 469,456 | 459,625 |
| Citi Corporate Loans | 174,543 | 202,259 | 196,316 |
| BAC Consumer loans | 588,679 | 623,049 | 602,857 |
| BAC Corporate Loans | 319,696 | 371,072 | 363,248 |
| JPM Consumer loans | 482,854 | 465,959 | 448,976 |
| JPM Wholesale Loans | 262,044 | 242,284 | 231,625 |
Note: Fourth quarter figures for Citi (page 53) and BAC are from the 10-Ks; BAC Fourth Quarter is calculated by subtracting consumer loans on page 56 from total loans on page 20.)
No good news there. Loans are falling at all three, with a small upward rise in the first quarter. This puts these big banks in line with most banks nationwide. After the first quarter, Bloomberg reported that “Bank loans fell to a record low in the first quarter as the Obama administration steps up efforts to jump start debt markets and revive corporate lending.” The great desire of banks to conserve cash led to gradual increases in rates for good borrowers just to preserve their lines of credit. So much for that rationale for the bailout.
The bailout hasn’t saved either BAC or Citi yet. The NYT reports that trading securities and sales of assets produced large parts of the gains at both companies. These banks are heavy in consumer lending, and as unemployment rises, consumers defaults will increase, and the banks will face bigger losses in the future. The question is whether they have set aside enough money to cover the anticipated losses, and whether they can sell off assets and make money trading against the vampire squid that is Goldman Sachs fast enough to offset the coming losses.
This calls into question the decision of the Obama administration to muddle through this crisis instead of closing these banks or forcing drastic changes in their structures. As Paul Krugman explains in the NYT:
Finally, given the possibility of bigger losses in the future, the government’s evident unwillingness either to own banks or let them fail creates a heads-they-win-tails-we-lose situation. If all goes well, the bankers will win big. If the current strategy fails, taxpayers will be forced to pay for another bailout.
The muddle-through strategy encourages unreasonable risk-taking, and all the giant banks are playing that game, with Goldman Sachs taking the ugly lead. In the meantime, as Gretchen Morgenson says, they have launched their lobbyists at Congress to stop any serious regulation, specifically anything that might impair their ability to keep playing the games that wrecked the economy, like credit default swaps.
Even the conservadem Colin Peterson, whose agriculture constituents want well-regulated markets, isn’t able to get a decent bill:
“The banks run the place,” Mr. Peterson said. “I will tell you what the problem is — they give three times more money than the next biggest group. It’s huge the amount of money they put into politics.”
The plain fact is that financial elites dominate the discussion. There is no one arguing for serious regulation, at least no one with the ability to stand up to the combination of true-believer republicans and easily frightened democrats. Chris Hayes tells us in The Nation:
On one side you have the entire networked overclass of twenty-first-century financial capitalism; on the other… the Center for Responsible Lending. That’s only a touch hyperbolic. The CRL does great work, and there are others–the Consumer Federation of America, Public Citizen–who have been toiling alongside it. But this doesn’t even rise to the level of being an unfair fight. It’s not a fight at all. "Dude, there’s just no comparison," one Democratic staffer on the House Financial Services Committee told me. "Just completely outgunned."
Right now, everyone is focused, rightly, on the health care debate. When that is over, attention will turn to financial regulation. I hope our side is ready.
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What do we need to do to be ready for financial regulation?
aside from being up on our masaccio
I imagine that the Gucci loafered lobbyists who are trying to defeat health care reform will be/are the same ones working against financial regulations.
Ed – this is no great surprise, given what we picked up in October:
http://www.nytimes.com/2008/10…..ocera.html
“The JPMorgan executive who was moderating the employee conference call didn’t hesitate to answer a question that was pretty politically sensitive given the events of the previous few weeks.
Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.
In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist….at another point in the conference call, the same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.”
Ding, ding, ding. It was all a sham. Paulson lied.
Completely OT….
‘In a shocking and unprecedented interview, directly exposing the inhumanity of Supreme Leader Ali Khamenei’s religious regime in Iran, a serving member of the paramilitary Basiji militia has told this reporter of his role in suppressing opposition street protests in recent weeks.
Iranian women protest in Teheran. [file]
SLIDESHOW: Israel & Region | World
He has also detailed aspects of his earlier service in the force, including his enforced participation in the rape of young Iranian girls prior to their execution.’
http://www.jpost.com/servlet/S…..2FShowFull
This is the question, isn’t it? First, I think we have to get over two concerns: 1) they, the administration and the financial elites know what they are doing, and the risks are too great for us to interfere; and 2) the whole area is complicated and we as individuals don’t really understand it.
The fact is that they really don’t know what they are doing. The evidence is their repeated abject failures, and the damage those failures have caused. For one thing, look at the foolish models they use. Look at their failure to learn from the past. Look at the arrogance they display at every opportunity, sneering at those in Congress who ask questions. Here’s Hank Paulson at the hearing last week according to Joe Nocera at the NYT:
He is just the visible face of arrogance. The rest of them think we are stupid, or at least naive.
The risks of letting them keep on going are far greater than the risk of interfering with financial laissez faire and pointless innovation.
Second, finance isn’t that complicated. Everything in business can be explained to average citizens. If it can’t, it is too complicated for businesspeople, who aren’t any smarter than the rest of us. In our society, with its emphasis on meritocracy in education, the smartest people are funneled into higher and higher levels of education. They become doctors, college professors and scientists, not chieftains of giant corporations.
**”The big idea behind the bank bailout was that the economy would recover when banks got back to lending,”…
“The banks run the place,” Mr. Peterson said. “I will tell you what the problem is — they give three times more money than the next biggest group. It’s huge the amount of money they put into politics.”
**The administration’s proposed 663.8-billion-dollar defense budget for fiscal 2010 scales back some major weapons programs…The budget represented a modest increase over defense spending under former president George W. Bush, despite critics’ claims that the administration has slashed military spending, Gates said.
The military budget “adds up to about what the entire rest of the world combined — friend and foe alike — spends on defense,” he said.
http://www.google.com/hostedne…..WPCEtz15OQ
**One of the most favored insiders in Representative John Murtha’s rich churn of defense earmarks has pleaded guilty to criminal charges, shedding light on a twisting, pay-to-play money trail….“What’s that got to do with me?” commented Mr. Murtha, who previously lavished praise and tens of millions of dollars in contracts on the two companies caught up in the criminal investigation.
http://www.nytimes.com/2009/07…..038;st=cse
From my pockets to Washington to the Banksters/Defense Contractors pockets back to DC/Murtha’s pockets. My pockets are emptied but that’s okay I’ll just charge it.
We cannot afford socialized medical care, sick people are freeloaders. The “Government Option” ha!…Free Markets bitches!
Recapitalization is necessary, but not sufficient to re-start lending. Without it new lending couldn’t happen. The banksters decided that the new capital wasn’t enough to allow new loans, that it had to be conserved against future losses.
Some (most?) of the current earnings is from fees earned as primary dealers of Treasury debt. A lot of Treasury bills and notes have been issued in the past quarter – over $350B. That’s potential for a lot of fee income. There have also been a number of secondary public offerings of equity, along with the underwriting fees and commission income there.
James Saft wants to know where our yacht is:
Goldman, where are the shareholders’ and taxpayers’ yacht?
Real financial regulation of the current broken system?
Of course this wasn’t about expanding credit availability in an already over indebted real economy. It was about reinflating the international financial system which had been crashed by the disappearance of hundreds of trillions in obscenely leveraged derivative bets.
Buying up toxic assets or recapitalizing former Wall Street investment banks converted or shotgun married to bank holding companies were just the latest shock doctrine ruse.
A confidence game in crisis, not a crisis in confidence.
There are fees for acting as a primary dealer. However, I’m fairly sure the trading results are separate from those fees. Look at page two of the JP Morgan 8-K. It shows the income by category, including “treasury and securities services” and “corporate/private equity”, and separately, income from investment banking.
Banksters = Loan Sharks. They will never reform on their own. We must have Glass- Steagal back updated to meet today’s electronic markets!! If not things will never change and the middle class will disappear!
Hey, nahant
Interesting proposal in this op-ed, that we should impose a transaction tax on proprietary trading. That would calm down the program trading that Goldman Sachs dominate.
repealed under Democrat Bill Clinton! thanks again!
Hey PPDCUS How Goes it?? 6 more days!!
On my way out for a ride …. it’s too nice outside. What’s the count for next Saturday?
Looks like 10 or so!! See ya then, have a nice drive. Motorcycle?? Great day for it.
Cycling without motors
I used to do that but…
This has become a recurring theme. The war supplemental, the energy bill with its cap-and-trade, healthcare, economic policy, in every case, we hear a promise of change but the actual legislation reflects the failed policies of the past. Glass-Steagall is not a panacaea but until we see a real and meaningful push to get it re-imposed we will know that financial reform is just another another of these co-opted examples. We will, of course, not see serious reform either until Geithner and Summers are gone and more than that replaced by those who are and have been right about what is going on in the economy, i.e. not the Washington Establishment or the Wall Street elites.
It’s a religious question
You can’t refute axioms with syllogisms. And most people in this country just know, from some place prior to all empirical evidence, that folks who can make billions in our economy are the only people who know what they’re doing, the people who have to be allowed to dictate relevant public policy if we are to have competent governance of our economy. No amount of evidence of self-dealing by these Masters of the Universe can refute this religious belief, because a consequence of the axiom that the wealthy got that way via superior competence, is that it still makes sense for us to follow their lead no matter how much they steal, because this economy that lets us all be born on third base compared to the third world is that way because we give these folks free rein.
CRL doesn’t lose because it’s outgunned. If the ammo in this fight were empirical evidence, no matter what the handicap in staffing, the CRL would be butchering the industry because the industry’s soldiers would be out of ammo. The problem is a way of thinking prior to the evidence, a state religion that has most of us worshipping Mammon, and imputing infallibility on the favored children of Mammon as evidenced by their earning ability. It’s a self-sealing delusion that will only be shattered when the world it has built founders. Things won’t change until the great god Mammon fails. It’s going to have to get much worse, world-ending worse, so bad that people in this country can no longer believe that we were born on third base, before CRL will start winning arguments in Congress.
I hate to point out something that refutes the premise of this article because I do think that the banks are picking our pockets but if I look at the numbers in the table, they do not back up your statement.
While JPMorgan is down in both categories and CITI is down significantly in consumer lending, BankAmerica is up in both categories and CITI is up significantly in corporate lending. This is just basic math.
Presumably this is just a typo, because otherwise it means that you didn’t read the numbers that you posted because that is how the wingnuts work and we are better than that.
When it comes to banking profits especially at Goldman Sachs, there was a story that appeared on Bloomberg on 7/3 and then was hushed up and never appeared on any other MSM site. Today while doing some surfing, I came across this piece that was an eye opener.
Russia Reports Massive $18 Trillion Theft Of US Funds By Israeli Backed Network
A stunning FSB report circulating in the Kremlin today states that the largest theft in World history has been engineered by the Israel Security Agency (ISA) under the direction of current Israeli Prime Minister Benjamin Netanyahu, Australian media oligarch Rupert Murdoch and the US investment bank giant Goldman Sachs that has stolen from American mutual and pension fund account holders over $18 Trillion through a device known as “the Doomsday box”.
According to these reports, Israeli opposition leader, and former Mossad agent, Tzipi Livni has turned over to the Obama administration the “complete dossier” of the ISA’s crimes against the American government and people after having the leadership of Israel “stolen” from her by Netanyahu, who through the ISA’s use of intimidation and massive bribes forced upon the Israelis the most right-wing government they have ever known.
These reports have come to light since last weeks arrest of a Mossad agent named Sergey Aleynikov by the United States, who these reports say stole from Goldman Sachs the most “complex and secretive stock manipulating programme ever created” and turned it over to Livni, and who in turn then gave copies of it to Russia, China and Germany.
Western news reports on the arrest of Aleynikov state that upon learning of the theft of their “Doomsday Programme”, Goldman Sacks ordered the US Government to arrest him, but as noted by the Bloomberg News Service, “what was Goldman doing with this programme to begin with”?
“Never let it be said that the Justice Department can’t move quickly when it gets a hot tip about an alleged crime at a Wall Street bank. It does help, though, if the party doing the complaining is the bank itself, and not merely an aggrieved customer.
Another plus is if the bank tells the feds the security of the U.S. financial markets is at stake. This brings us to the strange tale of Goldman Sachs Group Inc. and Sergey Aleynikov.
Aleynikov, 39, is the former Goldman computer programmer who was arrested on theft charges July 3 as he stepped off a flight at Liberty International Airport in Newark, New Jersey. That was two days after Goldman told the government he had stolen its secret, rapid-fire, stock- and commodities-trading software in early June during his last week as a Goldman employee. Prosecutors say Aleynikov uploaded the program code to an unidentified Web site server in Germany.
It wasn’t just Goldman that faced imminent harm if Aleynikov were to be released, Assistant U.S. Attorney Joseph Facciponti told a federal magistrate judge at his July 4 bail hearing in New York. The 34-year- old prosecutor also dropped this bombshell: “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”
How could somebody do this? The precise answer isn’t obvious — we’re talking about a black-box trading system here.”
To the power that the ISA led Goldman Sachs bank has had over the US in allowing them to steal nearly the entire wealth of that Nation has been devastatingly detailed by the Rolling Stone Magazine News Service in their report titled “The Great American Bubble: How Goldman Sachs Has Engineered Every Major Market Manipulation Since The Great Depression”.
Even worse for Americans is that their new President Barak Obama has so filled his administration with former Goldman Sachs executives and lobbyists that Russian economists are now calling Wall Street the “Fourth Branch Of The US Government”, and which includes their current Treasury Secretary, his Chief of Staff, the former Treasury Secretary under President Bush (who engineered the $700 Billion bailout of US banks), and the former Treasury Secretary under President Clinton (who allowed the deregulation of US banks allowing them to loot the American public of their wealth in the first place).
Most important to note in this report are the details describing how Goldman Sachs “Doomsday Programme” was “created” by ISA programmers working under the Chairman of the Israeli National Security Council, Dr. Uzi Arad, his wife, Dr. Ruth Arad, Vice President and Chief Risk Officer of Bank Leumi, and Jacob Ezra Merkin, who bought the Bank Leumi from the Israeli government headed by then Prime Minister Ariel Sharon and finance minister Ehud Olmert, who became Israel’s Prime Minister after Sharon but was forced to step down while under corruption charges allowing Netanyahu to steal the Premiership from Livni.
“We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.”
What does he mean by “the high cost of pricing on the loan side”?
I would hesitate to suggest such a tax until the economy is stronger. We don’t want to increase the cost of doing business (of any kind) just yet. An increased tax on individuals of wealth is a different matter. Bringing that money back into productive use would be stimulative (imagine it paying for health care, for example).
However, after the recovery we might indeed want to consider adjusting incentives (or disincentives) on a variety of economic or financial activities.
It’s quite a story. Is it true or a fabrication meant to cause investors to experience fear?
Perhaps the great manipulation “programme” is the method and theatrics needed to panic the market.
Thanks masaccio.