May 4, 2009
For the first quarter of 2009, the biggest banks showed substantial profits. Citigroup announced it had made 1.6 billion dollars in profits for the beginning of 2009, Wells Fargo had 3 billion dollars, Goldman Sachs, 1.8 billion dollars and JP Morgan Chase, 2.1 billion dollars.
Of course! These banks have benefitted from the handouts started by Bush and continued by Obama – trillions of dollars of tax money to save the financial system from its disastrous speculation. Citigroup, for example, received no less than 45 billion dollars in loans and benefitted from 300 billion dollars in government loan guarantees. Trillions of dollars have been given to the financial sector as a whole.
All this money, which was supposed to enable the banks to lend money to businesses and consumers and thus help the economy to turn around, only served to fill in some of the holes in the banks’ balance sheets. Instead of lending out more money, which was the official reason for the loans, the banks lent less and less. A study by the Wall Street Journal based on Treasury Department figures showed a substantial reduction in loans made by the main banks receiving bailout money. From October 2008, right before receiving the bailouts, to February, the last month for which there is data, loans and refinancing of previous loans made by these banks were 23% lower than before the bailouts.
The banks are lending little, but are making a big profit on what they do lend. They borrow money practically for free from the Federal Reserve, with an interest rate near zero. Then they lend it out to corporations at a minimum of 4% or 5%, and through credit cards to consumers at extortion rates nearly as high as 29.5%.
Obama, like Bush before him, didn’t require any concrete action from the banks for getting this money. On the contrary, Obama drew up a new plan to lend 900 billion dollars to the financiers, which will be extremely profitable for them.
Public money will be used to buy up their toxic assets. The banks themselves will say what their toxic assets are worth, when in fact they’re worthless. Financiers, hedge funds and other speculators will have to put up only 8% and will borrow the remaining 92% from the government as a guaranteed loan. If the operation pays off, the profits will be shared 50-50 between the government and its private partners.
But if it’s a failure, the government will assume 100% of the loss. All this is to lift the balance sheets of the banks that maybe will find buyers for their worthless assets.
So, the banks no longer have to consider these assets as losses. And so, this bookkeeping sleight-of-hand accounted for much of their recently declared profits.
But while public money floods in to save the banks, while everything is done to puff up their accounts, bank employees are the main victims. In one year, 262,000 employees lost their jobs in the financial sector, without the government caring the least to save them!