Banks are making huge profits again

[superdave]

This week has seen Goldman, JPMorgan and Bank of America record profits already after needing bailout money. They are now paying the government back the money it borrowed and in turn paying their employees huge bonuses.

I don't see how the banks went from a dire situation to a huge profit situation so quickly. Unemployment is still high and Obama said that he expects it to remain high for several months, however the banks are doing great now. I think it's good that the banks are able to turnaround to profit mode, however I'm suspicious they are doing it so quickly.

http://www.nytimes.com/2009/07/18/business/18bank.html?hp

[Miroslav]

Re: Banks are making huge profits again

You should be suspicious of those profits; most of them aren't real.

There is a lot of trickery that goes on when a financial institution reports its numbers, because a lot has to do with the valuations you assess to your assets and liabilities from one period to another - and those can be very complex. Goldman Sachs changes its calendar and other banks like JP Morgan did some tricks with how they valued their bonds. It's not completely ironic that many of their stock prices declined after the announcements; apparently, investors aren't all that stupid.

The other thing to keep in mind is that to the extent that these banks see profits now, it's also because of special provisions from the government and bailouts from the taxpayers. Goldman really is in a much better position than other banks as they largely avoided bad subprime bets that other banks had...and yet they got tens of billions in loans and the right to essentially borrow from the government at near zero. If I could borrow from the government and 0 and lends at 10%, I could make money too. And now that the herd has thinned and many banks went under, Goldman is in an even better position to dominate. What really should happen is that the taxpayer should be getting a good chunk of these profits which they helped finance.

The point with all of this is this: If these slick guys don't get you one way, they'll get find a way to get you in another way. Banks are (conveniently for them) indispensable to basically all economic activity on the planet. When the whole system was about to fall over, we needed to prop it up...but now that it's up, they'll find ways to do very well for themselves again. And they won't be gracious to you for the help. So it's the classic "can't live with them; can't shoot them in the head" scenario.

And guess what they'll be able to do after these reports of outsized profits? That's right...pay themselves record-size bonuses.

[runningman]

Re: Banks are making huge profits again

[youtube]http://www.youtube.com/watch?v=VSwWy4E6I04[/youtube]

[YOUTUBE]http://www.youtube.com/watch?v=ZoQrYa_NKQQ&NR=1[/YOUTUBE]


Max Keiser going off on Goldman.. Great watch.

[toasty]

Re: Banks are making huge profits again

And guess what they'll be able to do after these reports of outsized profits? That's right...pay themselves record-size bonuses.

You know what? If they get themselves off of the government teat and pay the taxpayers back, I am 100% OK with them paying themselves whatever the hell they want to pay themselves (with the obvious caveat that if they do it in such a way that they are back asking for more money in short order, that ain't right). If we're not footing the bill for them, it's frankly none of our business, as taxpayers, what they pay themselves.

As consumers, on the other hand, we can take a look at this behavior and determine whether we'd like to continue to bank with them, or patronize a bank that doles out their money a little more responsibly. If I were a bank that had very recently pulled itself out of a bailout, I don't think I'd be popping the champagne and splitting up the spoils just yet. The market giveth, and the market taketh away, and it is staggering to me that they would fall back into the same pattern of sacrificing long term stability for the short term gain of the executives. Does not inspire confidence.

[Lorn]

Re: Banks are making huge profits again

You know what? If they get themselves off of the government teat and pay the taxpayers back, I am 100% OK with them paying themselves whatever the hell they want to pay themselves (with the obvious caveat that if they do it in such a way that they are back asking for more money in short order, that ain't right). If we're not footing the bill for them, it's frankly none of our business, as taxpayers, what they pay themselves.

As consumers, on the other hand, we can take a look at this behavior and determine whether we'd like to continue to bank with them, or patronize a bank that doles out their money a little more responsibly. If I were a bank that had very recently pulled itself out of a bailout, I don't think I'd be popping the champagne and splitting up the spoils just yet. The market giveth, and the market taketh away, and it is staggering to me that they would fall back into the same pattern of sacrificing long term stability for the short term gain of the executives. Does not inspire confidence.

To add: I hope we consumers learn through this that banks are for profit companies which means putting your own money into them isn't always the safest thing to do.

[runningman]

Re: Banks are making huge profits again

Toasty don't you think the US citizen should share in the profits for a while?? I mean you guys put your neck out and took on the debt of Goldman.

Goldman is just going to come running again for more money come the new year.

[Miroslav]

Re: Banks are making huge profits again

As consumers, on the other hand, we can take a look at this behavior and determine whether we'd like to continue to bank with them, or patronize a bank that doles out their money a little more responsibly. If I were a bank that had very recently pulled itself out of a bailout, I don't think I'd be popping the champagne and splitting up the spoils just yet. The market giveth, and the market taketh away, and it is staggering to me that they would fall back into the same pattern of sacrificing long term stability for the short term gain of the executives. Does not inspire confidence.

To add: I hope we consumers learn through this that banks are for profit companies which means putting your own money into them isn't always the safest thing to do.

Well, I think we always knew banks were for profit companies, right??...

But here's the thing: you really can't go anywhere else but to them. And even beyond just the deposits you have with them, their real profitable business areas of deal making and investments and market making... there are very few others even in the game. They've got it on lockdown. This is like playing blackjack against the house: you may win a round, you may even float the house for a round...but in the end, the house always wins.

I do think that the taxpayers should own a big chunk of that Goldman profit. I don't think they'll ever see it...but they deserve it.

[Lorn]

Re: Banks are making huge profits again

Well, I think we always knew banks were for profit companies, right??...

Really?? Wow.

But here's the thing: you really can't go anywhere else but to them.

Of course you can. It just requires a little bit of thinking and discipline. A checking account at a bank is necessary but only for small sums of money and everyday bill writing.

Open an account at a financial institution (mutual fund company, brokerage company) which allows you to keep your cash balance in 100% short-term US Treasuries, the safest paper assets in the world. Most of these accounts allow check writing and even have debit cards available.

[superdave]

Re: Banks are making huge profits again

The banks I'm concerned with are Goldman & JPM because those companies posted big earnings based on their trading operations not what we think of like a traditional bank. The trading operations being the trading and selling of derivatives which got us into this mess in the first place. It's not as simple as the normal consumer saying let's move our money in our checking account to a different bank. Right now, the credit derivative market is still mostly unregulated and the survivors are splitting up the spoils for being the only game in town to trade these derivatives.

[Miroslav]

Re: Banks are making huge profits again

Really?? Wow.



Of course you can. It just requires a little bit of thinking and discipline. A checking account at a bank is necessary but only for small sums of money and everyday bill writing.

Open an account at a financial institution (mutual fund company, brokerage company) which allows you to keep your cash balance in 100% short-term US Treasuries, the safest paper assets in the world. Most of these accounts allow check writing and even have debit cards available.

But how are mutual fund companies and brokerage companies necessarily better than commercial banks? Many times, they're a similar kind of a giant corporate behemoth - hell, a lot of times they're a subsidiary of some giant bank anyways (and also for profit, of course). I thought you were going to say credit unions...I could see the logic resonate more there because ownership does not rest with a typical corporate entity.

[Lorn]

Re: Banks are making huge profits again

The banks I'm concerned with are Goldman & JPM because those companies posted big earnings based on their trading operations not what we think of like a traditional bank. The trading operations being the trading and selling of derivatives which got us into this mess in the first place. It's not as simple as the normal consumer saying let's move our money in our checking account to a different bank. Right now, the credit derivative market is still mostly unregulated and the survivors are splitting up the spoils for being the only game in town to trade these derivatives.

I hear ya. Its scary to think about the true size of these derivatives. Its an issue (dollar size) so big no amount of money in so called bailouts would be big enough to avert the disaster if it were to come crashing down.

But how are mutual fund companies and brokerage companies necessarily better than commercial banks? Many times, they're a similar kind of a giant corporate behemoth - hell, a lot of times they're a subsidiary of some giant bank anyways (and also for profit, of course). I thought you were going to say credit unions...I could see the logic resonate more there because ownership does not rest with a typical corporate entity.

Sure I can understand your thinking and agree with it. My main concern is the underlying asset my money is invested in. If a bank offered an account where my free cash money was invested in a short-term US Treasury (i.e. 4-week to 3-month bills) then I'd feel a lot better.

[Yao]

Re: Banks are making huge profits again

I actually got to speak to someone last week who has been in the banking world for most of his life, has been at the forefront of creating at least 2 banks and has held a number of high-profile positions in them. He now has started his own company, giving training courses to employees just out of university and organising congresses for large companies (think Unilever or Shell).

We had a conversation about what had happened at and some point I asked him whether he thought there would be any genuine change in the mode of though bankers have. He said no. In fact, he pointed out the arrogance with which bankers now operate, stating that "they got through this, so it wasn't that bad after all", using it to legitimize continuing the same way they always did.

Mind you, this is someone who is close with, for example, Fortis executives. I must say it was kind of disheartening hearing this from someone on the inside, though it really didn't suprise me given the fact that most people in the financial business seem to think that they're the only people our societies need to function. I saw these guys every day when I was still working for a design company in the financial district in Amsterdam, and I literally can't stand them and their f*cking attitude.

[Lorn]

Re: Banks are making huge profits again

I actually got to speak to someone last week who has been in the banking world for most of his life, has been at the forefront of creating at least 2 banks and has held a number of high-profile positions in them. He now has started his own company, giving training courses to employees just out of university and organising congresses for large companies (think Unilever or Shell).

We had a conversation about what had happened at and some point I asked him whether he thought there would be any genuine change in the mode of though bankers have. He said no. In fact, he pointed out the arrogance with which bankers now operate, stating that "they got through this, so it wasn't that bad after all", using it to legitimize continuing the same way they always did.

Mind you, this is someone who is close with, for example, Fortis executives. I must say it was kind of disheartening hearing this from someone on the inside, though it really didn't suprise me given the fact that most people in the financial business seem to think that they're the only people our societies need to function. I saw these guys every day when I was still working for a design company in the financial district in Amsterdam, and I literally can't stand them and their f*cking attitude.

That attitude sure is reinforced to them when history now says governments will step in and bail them out.

[runningman]

Re: Banks are making huge profits again

they own the government. It isn't an attitude issue it is a coup issue.

[Yao]

Re: Banks are making huge profits again

That attitude sure is reinforced to them when history now says governments will step in and bail them out.

The undeniable logic of that observation scares the shit out of me