April 15, 2010

Their Recession Was Short-Lived

April 15, 2010

The current recession in the U.S. was officially declared in December 2008, retroactive to December 2007. This declaration was made three months after ex-Federal Reserve Chairman Henry Paulson and President George W. Bush told the country they needed $700 billion to bail out Wall Street. In less than a week the money was granted and Paulson started handing out the money. The recession was over for Wall Street Bankers before it was even acknowledged.

Less than 6 months later — by the end of the first quarter of 2009 — banks were reporting profits. Admittedly, some of those profits were paper profits realized from selling assets and some creative accounting trickery, but profits none the less. By the middle of last year profits for the banks had risen well above the rest of industry profits ($190 billion) and the Gross Domestic Product ($200 billion). Today, just 18 months after they were bailed out with taxpayer money, the banks profits have exceeded what they were in early 2008 and nearly equal to what they were in 2007.

Much of these profits are the results of near-zero interest rate the banks are paying the treasury for the trillions they’ve “borrowed” from taxpayers. A graph (also below) by Bloomberg show current bank profits around $420 billion — just $30 billion or so below their record profits four years earlier.

This Bloomberg report says banks made $1.2 trillion in “excess profits” during the 2000’s; that is, when compared to all other industries and the GDP. A report by the Bureau of Economic Analysis summarizes corporate profits (scroll down at the link), which includes the financial industry.

JP Morgan just reported a 57 percent increase in first quarter profits versus the same quarter last year — $3.3 billion. Other banks are showing similar profit gains.

Federal Reserve Chairman Ben Bernanke testified before a congressional hearing yesterday. There he said new economic data predict a long road to full recovery. But he wasn’t talking about the banking industry. I suspect if Bernanke was pinned down on the banking industry, he’d have a completely different story, although it would be heavily camouflaged with a lot of fancy words and attempted miss-directions.

The fact is (and the entire world knows it) the people and the industry that bares the sole responsibility for the financial crisis had a very short lived recession thanks to the taxpayers. And the people who supplied them the money — which literally saved their lives — will be feeling the recession for years to come; maybe a decade or more. In the meantime, the bankers are calling us chumps and laughing all the way to the bank; and their multi-billion dollar life style.

Financial Industry Profit Graph