Break up the banking oligarchy and its enablers
One way to report earnings.
This is earnings-report season for America’s banks, and lo, what signs and wonders it has wrought.
Goldman Sachs reported $1.66 billion in profits in the first quarter. JPMorgan Chase posted $2.1 billion in earnings. Bank of America, $4.2 billion. Even Citigroup, the biggest and most beleaguered of America’s banks, reported a $1.6 billion gain, its first in 18 months.
Among them, these four big banks alone have received more than $125 billion in federal bailout funds, plus help from the Federal Reserve in buying up government debt. So do these earnings reports indicate that the rescue is working?
Yes, if you’re a credulous shareholder. Not so much if you’re trying to get a loan or a taxpayer wondering what’s being done with your money.
These earnings are ephemeral. Goldman Sachs changed its accounting calendar. JPMorgan Chase and Citigroup counted the loss in value of its debt as a positive. Bank of America counted $2.2 billion in gains from its acquisition of Merrill Lynch simply by re-pricing Merrill’s assets. Nobody knows what the assets are really worth, but assuming they’re ever sold, it probably will be at deep discount.
The last six months apparently taught bankers nothing about the suicidal folly of using accounting tricks to disguise financial realities. We’re surprised only that Lehman Brothers didn’t rise from the grave to report a billion dollars in earnings.
There are many reasons for the bankers’ legerdemain. They want to keep shareholders happy. They want to reassure Congress and the public. They want to appear healthy before Friday, when the Treasury Department is to give them the results of the dreaded “stress tests.” They want to look healthy enough so that the Obama administration will allow them returns on their bailout money, thus freeing them to pay themselves more than $500,000 a year.
The people of the United States, and indeed, the people of the world, are suffering because of a financial collapse brought on, in large part, by bankers and their cronies. So successfully have they taken control of the apparatus of government that it’s become nearly impossible to hold them accountable. Lending by the 20 largest banks in the Troubled Asset Relief Program has remained flat, even though the TARP funds were supposed to free up credit.
So far, President Barack Obama and Treasury Secretary Tim Geithner have tried to work with the banks, on the theory (probably correct) that unhappy bankers could make things much worse. This week, Mr. Geithner suggested that Treasury may seek to take an equity position in banks in return for suspending interest payments on federal bailout loans.
That move is overdue. Depending on the results of the stress tests — and we hope bank examiners didn’t fall for accounting tricks — the government should treat big banks the same way the FDIC treats smaller banks in distress: Take them over, straighten them out and break them up into manageable pieces.
The fundamental question is this: Do you trust the banks?
Do you trust their earnings reports, their lending policies, their devotion to the public good? Or do you suspect bankers’ first allegiance is to preserving the sweet deal they’ve created for themselves in the last 25 years?
Before answering, read Simon Johnson’s “The Quiet Coup,” an article in the May edition of The Atlantic magazine (online at www.theatlantic.com). The former chief economist at the International Monetary Fund says the United States has developed what is, in effect, a “banana republic” oligarchy among financial and government interests.
“Even leaving aside fairness to taxpayers,” Mr. Johnson writes, “the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: It is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms.”
To coin a phrase, we need change we can believe in.
Unfortunately, they aren’t “accounting tricks” they are required by the FASB, the unknown group of CPA’s who have caused so much of the severity of this recession. These new rules which require continual gyrations in the name of transparancy usually result in opacity. When I started my company many years ago, I hired a kindly Jewish Grandmother to be the bookkeeper. She told me, “look, all you need to know is four things: How much cash you’ve got, how much you sold, how much you owe and how much is owed to you. If you know those four things, you can run any business in the world.”. I wish she was still around. As long as they made sure she didn’t have to work on Thursdays, the day she got her pedicure, I think she could have added a lot of common sense to this recession.
I’d say that like the banks and GM, the Post is in the same downward cyclone of financial failure hell that has a firm grip at present. For GM & the Post it’s sticking to a model that consumers no longer want or accept (political basis {Post} bleeding the host company dry by the unions {GM} on products that are the same – no one really wants to buy or accepts).
Either way, many will go away given the absolute fundamentals of “supply and demand and most importantly quality” that are biting at the heels of each of the mentioned institutions.
Perhaps the Post, GM, and Bank former employees can get together and form a company to do “best practice work” on why they drove their host into the ground……………………………
Earnings reports-Nope, how can they post profits when they borrowed money from the public? Lending policies-absolutely not, how many people that have good credit cannot get loans after the banks happily took their money? Devotion to the public-again no, I dont see lending improving, these companies took tax payer money and then proceeded to increase credit card interests rates on responsible people, cut their balances and closed their accounts. Knowing full well that your debt to available credit greatly influences your overall credit rating. Do I trust them? Do sheep invite a wolf to dinner?
Yap, I don’t buy the earnings reports – I expect these banks all to collapse yet. I wouldn’t level this planetary mess entirely on the banks. Everybody has always wanted something for nothing; our generation has demanded it, and got it – for a while. That nothing side couldn’t really work, it’s all come due.
Look for the examples of what I mean, they are everywhere: high-yield, long term, low-risk investments (gullible); free movies / music (stolen); re-fi out your equity (dunce); public workers [police, teachers, firemen…] retiring well before 65 on pensions (unsustainable); government subsidized [tuition, healthcare, retirement…] (borrowing / printing / mooching!); public funded goodies [stadiums, pools, trails…] (more borrowing, mooching).
Cheap money is a huge component of what drives banks to do stupid things, and people to do the same. But you really need cultural rot to build a country of freeloaders, and bad ideas underlie it all. And who’s in charge of filling our heads with ideas?
All the money was sent to Israel.
This article is talking heresy! We’re supposed to be on board and satisfied with phrase like “Glimmers of Hope” and “Green Shoots of Recovery”, not questioning the actions of the elite and their continued policies of rewarding themselves for wrecking the world economy and still rewarding themselves for it.
“So successfully have they [bankers?] taken control of the apparatus of government that it’s become nearly impossible to hold them accountable.”
So it is governments fault, but only the bankers control of government. At least the PD has finally come out and said the government is at fault - I never thought that would happen. But their resoponse is more of the same — give government another chance, it was just the people involved this time who caused the problem, not the fact that government itself (read the FED and Fannie and Freddie MAC) that brought about the debacle.
Limit governments role (don’t allow them to promote credit to uncreditworthy candidates). The bankers will find one way or another to control the system and all the attempts to prevent it are ridiculous. Allow banks to fall on their own, we need the correction and we need better banks. We won’t get either as long as we keep propping up failure.
The government has painted itself into a corner. By propping up one company that faced bankruptcy, they put themselves in the position of having to justify not propping up the thousands of other companies which will face bankruptcy in the future, and of analyzing and managing the business of those for whom they do intervene.
The economic system which created the wealthiest nation in the world permitted failure. Bankruptcy was nothing more than death. Now, some people apparently believe that certain companies should be immortal. But if you allow companies to continue to exist and produce, regardless of demand for their products and efficiency of their business, you create poverty. For details, look at the economies of east bloc nations under communism.
Banks will always have money.
Money buys politicians.
Politicians will allow banks to make more money.
Banks with more money will buy more politicians.
More politicians will allow banks to make more money.
Banks will always have money.
Money buys politicians…………
We need lobby reform.
Put people like Phil Gramm in jail.
So I was wondering what people thought about a recent proposal I heard from a tea-party goer.
The problem with the tea parties is people are not destroying the property which has been taken from them. The originals destoyed tea “owned” by the British East India Trading Co. a government enabled monopoly (sound familiar). He proposed destroyin GM and Chrysler cars financed by Citicorp and reinsured by AIG. When the Tea partiers get serious and take back what has been stolen from them (or at least make certain no one else can profit by the theft) the PD might actually get serious about covering the story.
What do you think?