atp’s posterous

--- et ouais, pour ce faire des couilles en or post 2008, il fallait (1) avoir choppé le statut de bank holding company pendant la crise en évoquant le risque suprême de collapse intergalactique –statut traditionnellement réservé aux banques commerciales, càd celles qui prêtent de l'argent et qui du coup ont accès au financement de la Fed- et ensuite réfuter le business model de banque commerciale pour se concentrer sur celui de banque d'investissement –celles qui spéculent avec leur thune- mais tout ca government sachs et jp morgan vous l'expliqueront bien mieux que moi! http://www.nakedcapitalism.com/2009/10/quelle-suprise-banking-profits-might-be-due-to-big-government-subisdies.html ---

Actually, despite the somewhat churlish headline, the story “Bailout Helps Fuel a New Era of Wall Street Wealth,” by Graham Bowley at the New York Times, is a solid job of reporting and does not tiptoe around the issue of the big bennies that the financial services industry is enjoying and their role in creating outsized profits. It also makes a distinction, which has escaped many writers, that the firms that are doing really well are the big capital markets players, not conventional banks (or firms like Citi and Bank of America, that are capital markets firms with very substantial commercial banking operations). It was the markets that the powers that be were panicked to save (debt is now heavily intermediated on over-the-counter credit markets, vastly less on bank balance sheets than it once was). And with the subsidies directed mainly at shoring up credit markets and the firms that own and operate the crucial trading infrastructure, it should be not wonder that the players that were most deeply involved are showing the greatest gains.

The reason for the tart headline is that this view should be conventional wisdom by now (well, it is among folks who understand financial services, but not in the wider world). And it should have been widely commented on when first and second quarter bank earning came out,. Instead the meme was “isn’t it wonderful those banks we thought were dead are actually making money!” No one wanted to look to closely and ascertain that the pretty profits were the result of government props, not sounder fundamentals. The one who came closest to saying the truth was Meredith Whitney, who described the earnings as “manufactured” (recall the role of AIG swaps unwinds in 1Q results) but added that the banks could keep it up for another quarter or two.

The New York Times story warm up indicates that comparatively few are in on the role of the government support in the supercharged profits. The price provides a short recap and notes that the Federal aid is contributing to lofty bonuses:

It may come as a surprise that one of the most powerful forces driving the resurgence on Wall Street is not the banks but Washington. Many of the steps that policy makers took last year to stabilize the financial system — reducing interest rates to near zero, bolstering big banks with taxpayer money, guaranteeing billions of dollars of financial institutions’ debts — helped set the stage for this new era of Wall Street wealth.

Titans like Goldman Sachs and JPMorgan Chase are making fortunes in hot areas like trading stocks and bonds, rather than in the ho-hum business of lending people money. They also are profiting by taking risks that weaker rivals are unable or unwilling to shoulder — a benefit of less competition after the failure of some investment firms last year.

So even as big banks fight efforts in Congress to subject their industry to greater regulation — and to impose some restrictions on executive pay — Wall Street has Washington to thank in part for its latest bonanza…

Not all banks are doing so well. Giants like Citigroup and Bank of America, whose fortunes are tied to the ups-and-downs of ordinary consumers, are struggling to turn themselves around, as are many regional banks.

It is admittedly a high level treatment (for instance, it does not enumerate the various types of support, but does make clear it extends well beyond the TARP) but delivers its message in a clear, matter-of-fact, and unqualified fashion.

Some economists and bloggers have been on this theme (the extent of the subsidies and the lack of quid pro quo for the taxpayer) for quite some time, and their drumbeat continues. One salvo comes today from Jesse in “How Goldman Sachs Leveraged $70 Billion in Government Money For Record Profits.” While this is admittedly close to conspiracy theory, most investment professionals I know regard the latter phases of the stock market rally with great suspicion (too much end of day tape painting, too many heavy handed short squeezes, continued thin volume, and suspicious moves on indexes when they near levels that are significant to technicians). That of course begs the question, “If the market is being manipulated, how and by whom?” When I worked with the Japanese, it was widely known that the Japanese securities firms manipulated the markets and the politicians were tipped off early and bought stocks the brokers were about to ramp (look, if I as a mere gaijin heard about it, it was hardly secret). Yet when it came out in the Japanese media years later, it was treated as a huge scandal. I was and am perplexed that a widely-known practice could be treated as such a remarkable event. I regard much of this rally as a similar open secret, except how this is being carried out is a mystery (is this mere trader opportunism and brute force that looks like collusion, with the perps secure in the knowledge that the government won’t act against rule violations, since the outcome serves their interests, or something more deliberate?) [...]