Hard to say. On the one hand, as
What benefit might we get from all these record profits? A more liquid, better capitalized banking system. On the other hand, if the bankers simply ship the profits back out the door as dividends and paychecks, what we'll get is a big fat pile of nothing.
Which will happen? We don't know yet, for all of our dark suspicions. A lot has to do with the regulators--and also with the next few quarters. It wasn't totally surprising that the banks posted substantial profits as the capital markets recovered from total meltdown. Probably things won't look quite so outlandish in the future.
* I was not trying to deny Brad his rightful due; rather, I try not to quote people by name if the conversation wasn't clearly on the record, because sometimes people get upset. Now that he has outed himself, I gladly attribute it to its wise source.
You mean banksters.
But on a more serious note, the problem isn't that banks were bailed out. The problem is that 1) the same people who led the the system down the road to perdition are still in charge of the banks today and have thus benefited outlandishly from taxpayers largesse, and 2) that some connected, elite financial institutions continued to receive taxpayer money even after they arguably no longer posed a systemic threat. It is also quite galling that we still have no idea where a lot of the money went because key agencies and regulatory refuse to be regulated, and the Congress is complicit in this disturbing lack of transparency.
"It is also quite galling that we still have no idea where a lot of the money went because key agencies and regulatory authorities refuse to be regulated, and the Congress is complicit in this disturbing lack of transparency."
Read: audited.
"Taxpayers largesse"? Your tone sounds like you think we GAVE this money to the banks. But we didn't. We LENT it. They will pay it back. Some already have. Since the gummint was in large part responsible for the problems that the banks found themselves in, this seems only fair.
Even if they do ship the profits out to shareholders and employees, the general public gets something very tangible: a functioning capital market where companies can raise capital.
You still haven't answered the question. It doesn't effect most people. We don't have 30 or 40% unemployment do we?
If liquidity is the problem, couldn't the Fed just buy more bonds? Insolvent banks might still fail, but more money would be circulating for the better off banks to lend.
Pretty conclusively, huh? Are you trying to sound like as much of a Wall St. shill as possible now? Or do you just mean ugly results for your buddies at Bear Stearns and Lehman Bros.?
My guess is she means Bear and ML. Besides, yeah, there would have been short term pain, but it would have worked out long term. And we wouldn't have a moral hazard problem.
I was speaking of the Great Depression
Wouldn't it be fairer to say, "And not bailing out the financial system while demonizing capital markets, arbitrarily favoring certain industries and players, jerking around the gold reserve, introducing crushing tariffs, and crowding out private capital with wildly-thrown taxpayer dollars has been pretty conclusively demonstrated to have ugly, ugly results."?
I'm certainly not as well-read as I need to be on the Great Depression and its causes. It certainly seems that the American federal government made some horrific policy errors in the 1930's, quite possibly (but not conclusively) prolonging the Great Depression.
Unless I'm missing some glaring point I do not believe that the case has been made sufficiently that the recent massive government intervention has staved off a full-scale depression. Post hoc, ergo prompter hoc isn't good enough proof, especially when there's trillions of dollars at stake.
Would you or your readers be able to point to such a proof? Before my two-year-old's future is bankrupted?
It is time for Goldman to do the right thing and at a minimum offer the taxpayer a fair price for the warrants the government holds. And show some gratitude for being saved from the abyss. There is a related post at http://iamsoannoyed.com/?page_id=588
Somewhat apropos, remember the outrages over the AIG bonuses? Yeah, I had forgotten about that too now that Goldman is the new bogeyman du jour. Well, Michael Lewis gets the inside scoop from the bankers at AIG FP in his latest article, courtesy of Vanity Fair.
Teaser:
You're forgetting about the marvel of trickle down economics.
With such big bonuses, surely all our buckets will be filled with gold soon enough.
See video for explanation:
http://www.youtube.com/watch?v=QGAgu6zI9v0#t=2m32s
I could never quite understand why the government was so intent on getting the banks lending again.
Lending to whom? There is already too much debt.
If they really wanted to get things rolling again, they could have declared all debts annulled. Everyone could take their credit cards and new found equity in their homes and gone on a huge spending spree.
Derek
I haven't followed the details to closely the last month or so but my understanding is that the taxpayer is still long warrants from the TARP recipients. I know there was a plan for the companies to buy back the warrants but I don't think it went down.
If we are then to the extent this raises the banks share price our assets go up. It also provides the banks with capital that they can use to repay the TARP funds, all of that is good.
I mean if the banks are able to turn around and make a huge profit and nearly all can pay back the TARP there is no downside for the taxpayer. We made our money back plus a reasonable though not ultra-healthy spread. I wanted a bigger spread when the TARP went out and better deals on the warrants but I was "ok" with what we got.
I don't think the taxpayer got hosed. My point at the time was that we should hose the banks. Not because I have anything against the banks but simply because you never leave money on the table. If you the chance to extract profit from your counterparty, you should take it. I thought we had that opportunity, though in hindsight we may not have, and at the time I was disappointed that we didn't take it.
Thoughtful of you not to name this journalist; perhaps s/he is a movie reviewer or somebody not connected to economic activity in any way. BTW, did you try to fashion an answer before throwing the question to the commentariat?
Those of us who merely read the news heard that the FDIC stopped a one-day run on money market funds that, at over $1 trillion, may have been be the most virulent run on banks ever, money that no fund had on hand to pay out, and that even the Fed couldn't have "printed" fast enough. ... that by the Fed's accepting trash notes from banks, and giving greenbacks in exchange, other banks, who understand perfectly well what it means to lend money and not get it back, were willing to lend and otherwise transfer money between banks. ... that by fulfilling AIG's empty promises, firms that bought CDS "insurance" from it were not bankrupted by the losses on what they'd insured against. ... that an economist expert in financial disasters declared the US financial system insolvent, a claim that I heard repeated by more than one bank CEO. ... that banks haven't foreclosed on everybody who failed to pay per their terms, in a desperate attempt to get whatever they could in a plummeting real estate market.
I think about this every time I go to my ATM and sure enough, it spits out twenties. ... every time my grocer takes my debit card... when an airline website takes a bunch of credit card digits that I type in and a few days later, flies me to visit family and do business.
Many people like to think they COULD get along with all the banks and insurers defunct, and yes, there wouldn't likely be immediate deaths as a result. But I'll assert that we came perilously close to having the world economy thrown back into a barter system.
Mssrs. Paulson, Bernanke, Geithner, et al., to get the attention of people like politicians who don't read the financial pages and of others like your journalist friend, made the mistake of saying how serious things were, and presto! We had bank runs, spiraling layoffs, spending cutbacks, lending halts, etc.; everybody was working off their recently-pessimized worst-case scenario. We were in free-fall in late 2007 and early 2008 before it became obvious that Uncle Sam was willing and able to throw trillions at the problem to fix it. Yes, many people, especially those who caused the problems, were unconscionably enriched and we still are not out of the woods. But we're around to even ask the question.
It seems that we got pretty much what we reasonably could have hoped for: economic life goes on, alive if still wounded.
Oh, a PS: the bulk of the program that concerns people was designed by Secretary Paulson, working with Chairman Bernanke while a wiser-than-usual President Bush stood out of the spotlight. Secretary Geithner was confirmed close to the nadir of the situation, and then took a few scary weeks to convince us that he had found his sea legs and would be able to carry out the basic spirit of what was developed before his watch.
The change of political control occurred after the string of failures that included Countrywide, Merrill Lynch, Lehman, Bear Stearns, AIG and others, and serious concern that Citi, B of A, JPM/Chase and Wells Fargo were next. After Americans cut car purchases and other "discretionary" items in half. Months after our 401(k) accounts were halved. Over a year after employment started sagging before plummeting. Years after home prices started into free-fall.
"Thanks for nothing, Tim" smacks of know-nothingism, so much so that it suggests political inspiration to explain such blindness to the work of the questioner's own "profession."
Megan,
good to see that you're still receiving your "Daily Talking Points".
hopefully, for you, the Cheques are still following, soon thereafter.
Please Pray that this toon-sheet, The ATLantic, stays in Biz, I'd hate to be the one having to consider your Future job prospects.
There are people who don't capitalize. There are people who capitalize everything. It's unusual to see the random capitalization method, though. I like it - it seems to really work when you want the crazy to shine through. Better than the random bolding Walt has going.
tsotha,
past your, nice, timestaping, see: "It was literally on my first day of business school that a classmate asked me, "What's the most expensive form of capital?"
It was bizarre sort of pop quiz; he had come out of private equity, while I had been building servers for the last four years. I floundered.
"Equity," he solemnly informed me, after a few minutes of bewildered guessing. "Debt payments are capped. Equity has unlimited upside, while debt payments are capped.
This is conventional wisdom at America's business schools, and over the next few years, I definitely lived it. We borrowed money for school, for living expenses, for books. I bought a car, went skiing, went to Mexico on spring break. Why shouldn't we? We were "consumption smoothing"; in a few years, we'd be making more than $100K, so why not spend a little of that now?
Then we were unleashed on the world to tell companies about the astonishing benefits of leverage. Leverage let you turn a small investment into a huge profit. Leverage means you get all that juicy corporate upside for yourself. You should never use equity finance if you can use debt.
That logic is alive and well, as Joe Weisenthal reports: ...", and the rest of it..
from MM's post, previous to this one.
I won't call you Crazy if you don't see the two distinct voices, apparent, in these, respective, posts. Though, if you think they're Logically/Philosophically related, please show me how they are.
Good Luck with that..
These high profits could be a bad thing for the banks. After being bailed out by the taxpayer they're making huge profits. That in itself isn't too bad, but if the system ends up on the brink again in a year, and requires a trillion dollar bailout, there's gonna be blood in the streets.
I am a taxpayer (a real taxpayer, part of the small group that pays more than 80% of all taxes)
Yes, I am delighted that JPM, GS, et all are making money.
You see, I want some hope of getting my money back. If they are making money then there is a hope in hell my tax dollars will be repaid. In other cases, such as Fannie Mae, AIG, GM and others, the government in its wisdom has decided to dissipate the assets of these companies. I will never see a return on the money pumped in to those companies.
Granted, the banks that hurried to repay TARP did so only after the sleazeballs in the Obama camp double crossed them. Most banks were ASKED to take TARP money initially so there'd be lots of liquidity in the financial system and they had capital to absord the occasional Bear Stearns or small/regional bank failure. However, once the communists came to power they sought an excuse to nationalize those banks. Fortunately, most of the better banks have been able to extricate themselves (I hope they continue to resist - no parasan!)
The taxpayer was paid back. The bank profits announced this week were no so extraordinarily large, despite what the hysterics in the media say. The banks owe nobody but their shareholders and employees anything. The best thing they can do - for all of us - is to make money and make loans to creditworty borrowers. Tough luck.
"On the one hand, as a wise economist Brad DeLong* said to me last fall, "You can't bail out the financial system without bailing out those who are long financial assets". In other words, banks and bankers."
Yes - so we bailed out those with long financial assets. That was the whole point of TARP, right? And the purpose, Paulson told us, was to save the economy.
Last I looked, the economy has yet to meet its salvation.
But the shadow banking sector is reaping extraordinary profits. These are companies in a sector that exists solely because the feds bailed them out. Prior to the bailout, the highly paid execs at these companies made astonishing business errors that led to a catastrophic meltdown of the global economy. They are today profiting from federal policies that have consolidated the business and reduce competition.
I think that for people who breathe the rarified air of Wall Street all the time, it seems normal that such a turnaround can happen. But for those of us outside the shadows of the banking system, it is incomprehensible that a sector that had catastrophically collapsed last fall can turn around and show some of its more remarkable profits in history. And we are shocked to learn that the point of Paulson's TARP was to funnel bonuses into the pockets of the bankers who needed such extraordinary assistance last fall.
How does that add up to "astonishing business errors"? Sounds like evil genius to me.