And Then There Was Two . . .
Intriguing NYT article on the remaining two US financial giants, Goldman & JP Morgan:
“A new order is emerging on Wall Street after the worst crisis since the Great Depression — one in which just a couple of victors are starting to tower over the handful of financial titans that used to dominate the industry.
On Thursday, JPMorgan Chase became the latest big bank to announce stellar second-quarter earnings. Its $2.7 billion profit, after record gains for Goldman Sachs, underscores how the government’s effort to halt a collapse has also set the stage for a narrowing concentration of financial power…
Both banks now stand astride post-bailout Wall Street, having benefited from billions of dollars in taxpayer support and cheap government financing to climb over banks that continue to struggle. They are capitalizing on the turmoil in financial markets and their rivals’ weakness to pull in billions in trading profits.
For the most part, the worst of the financial crisis seems to be over. Yet other large banks, including Citigroup and Bank of America, are still struggling to return to health. Both are expected to report a more profitable quarter on Friday, but a spate of management changes and looming losses from credit cards and commercial real estate have thwarted a stronger recovery.”
Interesting read.
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Source:
Two Giants Emerge From Wall Street Ruins
GRAHAM BOWLEY
NYT, July 16, 2009
http://www.nytimes.com/2009/07/17/business/global/17bank.html
July 16th, 2009 at 10:43 pm
And yet the government doesn’t think there’s the possibility of collusion by those two to eliminate the other 3 big investment banks, eh? A duopoly if there ever was one. Ideally, the government would come in and order them to no longer be banks with an investment arm and a traditional banking arm OR force them to become smaller entities. But nobody sees that happening anytime soon.
Its almost as ironic as there being only one manufacturer for the board game “Monopoly”.
July 16th, 2009 at 10:45 pm
As if this wasn’t planned from the beginning by Hanky, Blanky, Dimon, Tiny Tim, and Banana Ben. Mission accomplished.
July 16th, 2009 at 10:52 pm
it sounds to easy to me…
give me 30 more months on this…BUT…come uppance?
I’m going to earmark this post…I’ll revisit it later…
July 16th, 2009 at 10:57 pm
And to think that they have been financed by low interest rates which are absconded from seniors and other savers. They then are given access to tarp funds in such huge amounts that they can use these huge funds to manage the markets to their interest; which means once again their gains are at the expense of seniors and other poor souls who play the markets and somehow think they can beat the house. Lol.
July 16th, 2009 at 11:00 pm
Thanks for the reminder, peterwf. Not a senior but I am a “saver” and someone who is getting tired of trying to beat the house. I’m getting very tired of getting screwed. I really am. If my wife and I ever get into financial trouble, I’ll have no problem jacking up all our credit cards (we have several that probably total over $200K that’s not tapped) to survive and walking on repaying. One could argue we should have just joined the credit orgy when it was happening. Silly us. We thought we were supposed to be responsible people and do the right thing. Not anymore.
July 16th, 2009 at 11:18 pm
There is no doubt that these two are TBTF because they are TCTF. I would say that the sky is probably the limit for their share prices. However, standings on my principles which has cost me money in the past, I can say with sincerity that I will never own either of these two’s shares. I’m a senior and a saver.
July 16th, 2009 at 11:23 pm
From the post, above:
“For the most part, the worst of the financial crisis seems to be over.”
_______________
No, it’s not.
While I agree the the hooligans running these brothels are profiting (not necessarily capitalizing) from the current turmoil, I don’t think that what we’ve experienced, to date, was the worst we will see as a result of their previous fuckery. The worst will involve much worse than anyone is currently willing to admit.
July 16th, 2009 at 11:31 pm
So what would these numbers look like with full mark to market brought back?
July 16th, 2009 at 11:46 pm
That is going to be a lot of fun to watch the impotent regulators trying to oversee these guys.
It ’s going to be a sad spectacle.
July 17th, 2009 at 12:23 am
All the rhetoric about not allowing institutions to be too big too fail as they could pose a systemic risk seems to be pretty empty so far. Although, I must admit that I have noticed an uptick in more mainstream media jabs at Goldman and even skimmed over a Talking Points Memo regarding the topic today despite the source not being one of my regular reads.
FrancoisT may well prove to be correct IMO. From my own rather short-lived personal experience as a healthcare regulator in a small backwoods state I learned pretty quickly that the law only applies to those who are not connected or don’t have something to offer the boss. In my mind this is unfolding like a sort of hostage situation and, judging from the events of the past year starting with the October bailout proceedings, the hostage negotiators can’t be trusted. I would really like to be proven wrong but I’m not holding my breath.
July 17th, 2009 at 12:41 am
I keep going back to Simon Johnson’s article a few months back.
A banking oligarchy is the distinguishing feature of a banana republic, and economic stagnation.
GS and JPM can bank the billions and billions and their stock price can soar.
While the ranks of the unemployed and underemployed explode.
Want a job? Can you say “would you like fries with that” in Spanish?
We first started using that joke in the late 80s.
What doesn’t change stays the same.
July 17th, 2009 at 5:25 am
I have ZERO respect for Obama- change we can believe in? where? what has he done exactly that Bush would not have done- allowing the gaming of the system by well connected bankers-
now he is trying t push through a health care bill which is the absolute worst of both worlds- forcing employers to provide health insurance- thereby strengthening the insurer’s hands – and expanding medicare to cover the current uninsured- forcing taxes higher-
where are the cost savings??? Why are insurers in the mix?? Even the CBO said his plan is a disaster. Guess the insurance lobby is as important to Obama as the banking lobby- the man just isn’t what he said he was- just along for a 4 year ride as POTUS – has no real vision unless he is reading a prepared text from teleprompter-
what a dissapointment
July 17th, 2009 at 6:09 am
i’m also pissed at being duped by the Obama promises, only to be discarded after election. Politics won’t change the broken government we now live under. It isn’t a democracy any more (since we don’t use the Constitution, corruption abounds, and corporations own the people in power) and the printing of fiat money makes it look more and more like a banana republic out here: two widely different classes of people – one with access to power and wealthy (about 5% of pop.), and everyone else, sliding into poverty – and the double-standard “rule of law.”
No doubt this will end badly.
July 17th, 2009 at 7:37 am
For the most part, the worst of the financial crisis seems to be over. Yet other large banks, including Citigroup and Bank of America, are still struggling to return to health.
——————
With Fed Funds at .2%, it’s hard to say it is over.
July 17th, 2009 at 7:52 am
Silly us. We thought we were supposed to be responsible people and do the right thing. Not anymore.
—————–
I’m a saver. A couple of years ago I was angry. Now I understand that no matter what the rules are it does not matter. Rules can be broken. Change is natural. Nature hates a void.
People have to adapt, and if the spendthrifts win they will have proved to have better luck or a better survival instinct than mine.
In the last couple of years, while playing games with my children, I realized that people are born with the inherent knowledge that luck is very important. Kids inherently know this and we bash it out of them. We teach them skills because we know that luck can run out. And somewhere along the way, we manage to convince ourselves that if we are good enough, luck has nothing to do with it. We are deluded. Luck means a lot, skill or not.
That slower bug flying behind the pack, thus missing the pesticide spray survives not because it is the fittest but because it was at the right place at the right time. That’s life.
July 17th, 2009 at 8:11 am
Although I still believe in saving because a safety cushion is always better than none, I think we were fools to think that the system would protect all of our savings + future returns.
Why should the savers make more money than they deserve thanks to overinflated asset valuations?
Both savers and spenders can be blamed for their greed. Spenders lived above their means now and savers were hoping to live above their means at retirement.
The reality is that most people were not saving enough and thought that the market would keep on doing the heavy lifting (other people working like slaves) for them.
July 17th, 2009 at 8:44 am
This is my last post…
I used to think that everybody should live withing their mans and save but then I realized that probably more than 50% of families can’t save even if they tried.
They can only afford a home farther away for their work, both work so they have to pay daycare and need a second car because of the distance and the daycare.
Many angry savers will say that they could always rearrange their lives so as to cut something. Like rent an apartment… The reality is that this can be done at the individual level. If all the 50% did it they would arbitrage the savings away.
In Capitalism, the owners of capital want to increase their returns and cut costs as much as possible. The better they are at doing this the more wealth will be concetrated as time goes on. This is exactly what we have been seeing over the last few decades.
As the average Joe feels increasingly left out, his willingness to stick the capitalist with bad debt increases. We are there now. Many people had less to lose by going in debt than by not playing.
The same wealth concentration occured during the 20s. Something happened that managed to level the playing field for a few decades and gave birth the the American middle class.
We’re at a tipping point now. Either the rich get richer and we go into some remake of the feudal system or the wealth gets redistributed. It there is re distribution, the savers will get diluted.
So all of us positive net worth savers who are angy with GS and the elite are essentially full of contraditions because we are part of the problem!
July 17th, 2009 at 9:17 am
I am puzzled as to why the Times ( although the wording is coy) thinks the worst is over. One primary reason that GS et al are able to show a profit is that they are allowed to carry derivatives, etc and the value they “think” such things are , whcih, as an astonishing coincidence, always happens to equal what they paid for them, at least or, at a minimum, the value of the loansa etc., they cover. But the derivatives are there in case of defaults and there are many, many defaults yet to come. In other words the “carrying” value will have to be proven someday. And based on the numbers I’ve seen, the issuers cannot possibly produce enough. This may haapen this year, with commercial loan defaults or it may happen in 2010. But it will happen
July 17th, 2009 at 9:31 am
I think Malthus was correct, but not in the way that most who ascribe to his views believe. (Malthus was the guy who said that mankind was always doomed to live a life of subsistence because population grows geometrically while food output grows arithmetically).
He was correct that the vast majority would always lead lives of barely-scraping-by subsistence because that is how people are programmed to expect life. It is in their genes to expect that life is a struggle to survive, so even when they find they have the ability to live with excess over subsistence, they squander it on trinkets and baubles and expanding waist lines so that they can return to their preferred bondage.
They are collusively encouraged to live beyond their means by virtually every cultural influence to which they are exposed. Thrift is shunned because the economy’s continued viability is predicated on continued growth, even when growth is not necessary for meeting the needs of the individuals making up the economy. Thus they remain in bondage.
The only way out of bondage is to learn to live simply and humbly, controlling the passions by a reasoned view of understanding and controlling them.
There is much more to this, but I have to go. Let me just say that a bit of ascetism can go a long way.
July 17th, 2009 at 9:45 am
I’ll be my namesake (vigilant and watchful) 1 more time .. and remind some other vigilant book talkers the President is but one office in the great American experiment of Business 1st .. you all know that .. so this S’ tops your F’ regime .. now bury this thread in trader twitter this dayout
back to the meat .. the insurance bill as I’ve heard it supposed will allow moving out of an employer and carry a family over to a new job or over till a new job is found .. that is bad news for companies in a world that a business education is not really learned anymore in a school, but on the job vocational training .. the modern technologies of the 21st century are not in textbooks any longer and the TBTF corporations know that the insurance hold on its slaves is a just that
July 17th, 2009 at 10:06 am
Amazing thing about JPMorgan is they bought all that “crap” (WaMu etc…) that was supposedly “toxic”.
Well, with Fed at 0% it must be kind of hard to lose money as a bank. Still, this is amazing. Infuriating but amazing.
July 17th, 2009 at 10:11 am
danm and Curmudgeon @ 9:31am .. the magic was being primarily the sole survivor of WW2 and a Better Homes and Gardens advertising campaign that created demand in many industries .. now I’m afraid that dream life has been outsourced to thinly and is extracting its price .. nomadic needs are returning too (imo)
and for you day traders – I woke to Cspan and Defense Sec Gates replay from Chicago – some systems are being nixed (attempting) if you haven’t heard .. it was a good speech (from paper) (not a techy teleprompter) .. and why bring this line up .. Guns or Butter? .. I think we all know our place is Guns 1st .. and his thoughts on $s spent world over and us (USA) .. and future threats and weapons systems needed to thwart .. you all know I’ve been saying how about tryin BUTTER