When asked why he robbed banks, the criminal Willie Sutton famously replied: “Because that’s where the money is. Willie wasn’t wrong. It’s less than a year after the threat of a general banking collapse and the latest numbers show the top banks making money hand over fist.
Goldman Sachs has taken the market by storm with its profits of $2.7 billion and JP Morgan Chase announced its earnings were higher by 36 percent.
These banks were able to do this while at the same time returning the billions of dollars borrowed from the US government with interest.
The money was made through Wall Street activity of trading and underwriting fees for issuing bonds. As smaller, lesser banks and institutions fell by the wayside, the giants of Wall Street literally swept up the spoils and made billions.
However the fact that these banks were able to report such remarkable results when the economy is still mired in recession, with rising unemployment, is distasteful and certainly raises questions about how and why.
American banks were given US government cash, at low interest rates, which they were then able to use to make much higher rates of return. They received guarantees to prop up balance sheets at a time when the rest of us were terrified of financial Armageddon. It is obvious the money was put to good use – to make more money!
There are many reasons why the top banks seem to have done so well, not least the dwindling number of top investment banks in existence. Bear Stearns and Lehman’s have gone. Merrill Lynch is now part of Bank of America. For those still around, there is more of the cake to enjoy. The second quarter saw exceptionally strong gains on the stock market off the March lows which means they were able to make huge trading profits.
Not all banks will be back into the stratosphere. Those institutions with more consumer loans on their books won’t perform nearly as well, as more of us are defaulting on our loans and payments.
What was galling was the announcement by Goldman that it was putting $11 billion aside for compensation; in other words to pay bonuses. That dirty word is back. It has been calculated that divided equally, each Goldman employee would get $770,000. But of course it won’t be paid equally – some will get considerably more.
All of this in the same week that Britain reported the largest monthly increase in unemployment on record, and the US Federal Reserve admitted that the US unemployment would rise to more than 10 percent. Largely, of course, on the back of a recession caused by the pernicious actions of Wall Street and its cohorts. At this point you are probably turning an unhealthy shade of red and are about to explode with rage. The financial community it seems lives in a chimerical world where no sooner is the crisis over than everyone is back to making potentially vast sums of money.
Like everyone else, I want a healthy banking system that performs its proper role in the financial world. But surely there also needs to be a time for remorse and reflection before we fire the starting gun for the next race to the top.
Banks may be where the money is kept, but it doesn’t mean the rest of us have to allow them to get away with daylight robbery.
Tune in to Richard Quest each weekday at 9pm Cairo /9pm Kuwait /9pm Riyadh /10pm Dubai on Quest Means Business. www.cnn.com/qmb