[I forget -- why shouldn't we nationalize the banking system?]
[And is there a snappy nickname for no-carrying-necessary trade, where banks borrow from the government and then immediately lend it back?]
http://opinionator.blogs.nytimes.com/2010/04/19/youre-welcome-wall-street/
April 19, 2010, 8:59 pm
You're Welcome, Wall Street By WILLIAM D. COHAN
In a 1964 concurring opinion deciding Jacobellis v. Ohio, Associate
Supreme Court Justice Potter Stewart wrote about "hard-core
pornography" and his struggle to define it: "Perhaps I could never
succeed in intelligibly doing so. But I know it when I see it."
Using Potter's indisputable logic, it's hard not to see something
obscene in how Wall Street reaped massive profits and bonuses in 2009
-- and continues to do so, as is clear from Monday's announcement by
Citigroup that it had earned $4.4 billion in the first quarter of 2010,
which was even more than earned by Bank of America ($3.2 billion) and
JPMorgan Chase ($3.3 billion) in the same period -- merely 18 months
after trillions of dollars of American taxpayers' treasure was used to
save a financial system brought to the precipice by Wall Street's greed
and irresponsible risk-taking. Goldman Sachs, which is facing a civil
fraud suit filed by Washington regulators, is expected to report robust
earnings Tuesday morning as well.
How did this happen at the same time Main Street continues to suffer
from an unemployment rate of almost 10 percent and from the worst
recession in generations?
<snip>
Mostly, though, Wall Street is
making money by taking advantage of its rock-bottom cost of capital,
provided courtesy of the Federal Reserve -- now that the big Wall
Street firms are all bank holding companies -- and then turning around
and lending it at much higher rates.
The easiest and most profitable risk-adjusted trade available for the
banks is to borrow billions from the Fed -- at a cost of around half a
percentage point -- and then to lend the money back to the U.S.
Treasury at yields of around 3 percent, or higher, a moment later. The
imbedded profit -- of some 2.5 percentage points -- is an outright and
ongoing gift from American taxpayers to Wall Street.
You're welcome.
<snip>
[In addition, d]espite my bank calling it a "premier platinum savings"
account, I am getting a measly 0.15 percent interest rate. On my
"premier platinum checking" account, the interest rate is 0.01 percent.
In an essay in The Wall Street Journal recently, Charles Schwab pointed
out that there is more than $7.5 trillion in American household wealth
stored in short-term, interest-bearing checking, savings and CD
accounts. (The average interest rate for a one-year CD is 1.3 percent.)
Our savings is another source of virtually free capital for banks to
use to lend out at much higher rates.
<snip>
Sure seems to be working for Wall Street, though. At $140 billion in
compensation and benefits, the 2009 paychecks on Wall Street were the
best ever. While several top executives named in public filings may
have tried to minimize their 2009 compensation after so much populist
rage, they could only take this charade so far.
Hedge fund managers did even better. The top 25 earned a total of $25.3
billion in 2009 -- an average of $1 billion each -- with the lowest
paid hedge-fund manager receiving $350 million. Topping the list was
David Tepper, of Appaloosa Management. He made $4 billion last year.
"We bet on the country's revival," Mr. Tepper said in an interview with
The Times.
Let's be clear about one thing: The American people made a bigger bet
on the country's revival than did Mr. Tepper. But we are still waiting
for our payoff. Surely Justice Stewart could see that the tax on
American savers and the corresponding subsidy to hedge-fund managers,
bankers and traders is nothing less than hard-core pornography.