Posted on Tuesday, December 14, 2010
Two agonizing years for the U.S. economy have been some of the best years on record for Wall Street.
After first receiving billions in taxpayer aid, and now ultracheap funding from the Federal Reserve, Wall Street banks are on track to wrap up two of their best years ever.
Even if the current quarter only matches the third in revenue, this year will be the second best ever for Wall Street, capping a two-year winning streak fueled by government dollars, Bloomberg reports. With more than $100 billion in their pockets from the Troubled Asset Relief Program, which offered them hundreds of billions more, the five biggest investment banks -- Goldman Sachs, JPMorgan, Bank of America, Citigroup and Morgan Stanley -- have seen their revenue this year climb to $93.7 billion.
"This is a once-in-a-lifetime opportunity for most of these banks, and I think they've recognized it as that," finance professor Charles Geisst told Bloomberg.
The assistance hasn't stopped with TARP. The Fed is in the process of buying $600 billion in government debt -- from banks. As part of its quantitative easing program, the Fed announces its purchases ahead of time, giving certain banks an opportunity to profit on the trades. The asset-purchase program, intended to augment the flow of cash through the economy, is first and foremost a boon for corporate America.
According to an October estimate, Wall Street firms are set to pay out $144 billion in bonuses this year, to break a record for the second year in a row. When the government looked at pay practices of firms that got government help, then-pay czar Kenneth Feinberg determined the bonuses were "ill-advised" but decided they shouldn't be clawed back -- even though he later portrayed Wall Street banks as "using taxpayer money to feather their own nests."
Critics note the disparity between banks' earnings and the state of the real economy.
"An economic recovery is about what happens to American families, it's what happens in the real economy," special White House adviser Elizabeth Warren told Bloomberg television. "It isn't meaningful to talk about profits and a growing economy until Americans are stabilized."
After the worst financial crisis since the Great Depression, caused in part by large-scale gambling on Wall Street, unemployment has remained stuck around 10 percent. Companies, meanwhile, are hoarding cheap cash instead of using it to create jobs. According to Federal Reserve data released last week, companies increased their cash holdings by 7.3 percent in the third quarter, setting a new record. Relative to their short-term liabilities, corporations haven't sat on this much cash since 1956.
Even as Wall Street celebrates its winning steak, Wall Street pay practices, which rewarded short-term risk-taking in the years leading up to the crisis, have worsened, according to a new report. Rules that were intended to make chief executives concerned for their companies' long-term health have instead caused their salaries to grow, without adding any real incentive to curb excessively risky behavior, the Council of Institutional Investors report concludes.
The Huffington Post | William Alden