Wall Street's laughing all the way to the bank

[Chimichurri]

The credit crisis really puts the free in free market. The freest market is supposed to be the United States, and the evidence in favour of that argument is mounting. It's just not what you think. Free, in this case, means a free ride for a select group of people. Wall Street never looked so good, or bad, depending on your perspective.

From early 2004 until mid-2007, the big Wall Street investment banks made $250-billion (U.S.) in profits. (That's Bank of America, Citigroup, JPMorgan, Morgan Stanley, Goldman Sachs, Lehman Brothers and Merrill Lynch.) During the past year, they've written off $107-billion. Keep in mind as we follow the money that if you include smaller dealers and commercial banks, the profit number swells and the writeoffs are even bigger.

As fate would have it, the writedowns, mostly garbage subprime loans, equal almost perfectly the amount of money Washington will dole out in stimulus cheques to get the economy going again. The House of Representatives Speaker said last year that the stimulus package would create 500,000 jobs. She got the number more or less right, but it was actually a loss of jobs.

Meanwhile, recent figures show that of the money that's been mailed and spent, only a 10th has gone to new spending.

The rest of it has been consumed by inflation (that is, because prices have gone up, even if consumers take their money to the mall, they're not helping the economy much).

Inflation is partly a product of easy money or low interest rates. Why does the Federal Reserve keep interest rates low? To stimulate the economy, which is being ravaged by the housing recession. The housing recession, meanwhile, was fuelled by Wall Street's greed and recklessness, aided and abetted by the easy money and the fraudulence of builders, appraisers and mortgage brokers.

Back to Wall Street to start connecting the dots. According to the New York State Comptroller's Office, the big banks paid $33.2-billion in bonuses in 2007, down only slightly from 2006, an even more splendid year for subprime origination. During the past four years, bonuses closed in on $100-billion, not far off the writeoffs and the stimulus package.

Back to Washington, whose coffers are bare, meaning that $107-billion is borrowed money. Borrowed from whom? Savers, mostly foreign. Borrowed by whom? The taxpayer of course. So in effect, the stimulus package is simply a matter of the cash-strapped, highly indebted U.S. consumer borrowing to spend (or pay debts) to save the economy.

It's pretty clear what's happening. Ultimately, the people are borrowing to pay Wall Street bonuses. After all, these handsome rewards are based on the earnings of the banks, but they're not real earnings, since the assets that produced them are subsequently written off.

...read the rest here http://www.reportonbusiness.com/servlet/story/RTGAM.20080723.wrvoxx0723/BNStory/robColumnsBlogs/home

[mediaman007]

1. A short intermission for the Obama presidency, then the next act will be

Social Security!

[NightWatcher]

2. when they get to the bank they'll be shocked to find it's empty

"Paper money eventually returns to its intrinsic value--zero." ~ Voltaire


Ruin the entire system all in the name of money then try not to be surprised when you find that due to inflation, the money is worthless.

[BlooInBloo]

3. Yup, that's why although both lenders and borrowers were irresponsible....

The borrowers were much more so, by my lights. The irresponsible lenders at least could bank (rimshot) on their dimwit white house puppet bailing them out. The irresponsible lenders could bank on no such thing.