The Banks Are Not All Right

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

In het land waar dit jaar elke 3 dagen een bank onderuit ging denkt men zo
over de soortgenoten ;)

Groet / Cees

http://www.nytimes.com/2009/10/19/opinion/19krugman.html?
The Banks Are Not All Right
By PAUL KRUGMAN

It was the best of times, it was the worst of times. O.K., maybe not
literally the worst, but definitely bad. And the contrast between the
immense good fortune of a few and the continuing suffering of all too many
boded ill for the future.

I’m talking, of course, about the state of the banks.

The lucky few garnered most of the headlines, as many reacted with fury to
the spectacle of Goldman Sachs making record profits and paying huge
bonuses even as the rest of America, the victim of a slump made on Wall
Street, continues to bleed jobs.

But it’s not a simple case of flourishing banks versus ailing workers:
banks that are actually in the business of lending, as opposed to trading,
are still in trouble. Most notably, Citigroup and Bank of America, which
silenced talk of nationalization earlier this year by claiming that they
had returned to profitability, are now — you guessed it — back to
reporting losses.

Ask the people at Goldman, and they’ll tell you that it’s nobody’s
business but their own how much they earn. But as one critic recently put
it: “There is no financial institution that exists today that is not the
direct or indirect beneficiary of trillions of dollars of taxpayer support
for the financial system.” Indeed: Goldman has made a lot of money in its
trading operations, but it was only able to stay in that game thanks to
policies that put vast amounts of public money at risk, from the bailout
of A.I.G. to the guarantees extended to many of Goldman’s bonds.

So who was this thundering bank critic? None other than Lawrence Summers,
the Obama administration’s chief economist — and one of the architects of
the administration’s bank policy, which up until now has been to go easy
on financial institutions and hope that they mend themselves.

Why the change in tone? Administration officials are furious at the way
the financial industry, just months after receiving a gigantic taxpayer
bailout, is lobbying fiercely against serious reform. But you have to
wonder what they expected to happen. They followed a softly, softly
policy, providing aid with few strings, back when all of Wall Street was
on the ropes; this left them with very little leverage over firms like
Goldman that are now, once again, making a lot of money.

But there’s an even bigger problem: while the wheeler-dealer side of the
financial industry, a k a trading operations, is highly profitable again,
the part of banking that really matters — lending, which fuels investment
and job creation — is not. Key banks remain financially weak, and their
weakness is hurting the economy as a whole.

You may recall that earlier this year there was a big debate about how to
get the banks lending again. Some analysts, myself included, argued that
at least some major banks needed a large injection of capital from
taxpayers, and that the only way to do this was to temporarily nationalize
the most troubled banks. The debate faded out, however, after Citigroup
and Bank of America, the banking system’s weakest links, announced
surprise profits. All was well, we were told, now that the banks were
profitable again.

But a funny thing happened on the way back to a sound banking system: last
week both Citi and BofA announced losses in the third quarter. What
happened?

Part of the answer is that those earlier profits were in part a figment of
the accountants’ imaginations. More broadly, however, we’re looking at
payback from the real economy. In the first phase of the crisis, Main
Street was punished for Wall Street’s misdeeds; now broad economic
distress, especially persistent high unemployment, is leading to big
losses on mortgage loans and credit cards.

And here’s the thing: The continuing weakness of many banks is helping to
perpetuate that economic distress. Banks remain reluctant to lend, and
tight credit, especially for small businesses, stands in the way of the
strong recovery we need.

So now what? Mr. Summers still insists that the administration did the
right thing: more government provision of capital, he says, would not
“have been an availing strategy for solving problems.” Whatever. In any
case, as a political matter the moment for radical action on banks has
clearly passed.

The main thing for the time being is probably to do as much as possible to
support job growth. With luck, this will produce a virtuous circle in
which an improving economy strengthens the banks, which then become more
willing to lend.

Beyond that, we desperately need to pass effective financial reform. For
if we don’t, bankers will soon be taking even bigger risks than they did
in the run-up to this crisis. After all, the lesson from the last few
months has been very clear: When bankers gamble with other people’s money,
it’s heads they win, tails the rest of us lose.

Van de 248 commentaren op dit artikel, worden deze het meest gewaardeerd
door lezers:
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“Ask the people at Goldman, and they’ll tell you that it’s nobody’s
business but their own how much they earn.”

Now that the arrogant uber welfare queen, Goldman Sachs, refuses even to
acknowledge that it has survived primarily due to the “kindness of
taxpayers” who it had earlier robbed and ground into poverty and
unemployment, it is time to remove all the federal guarantees under which
it currently so brazenly operates. While we are at it, let us also revoke
the emergency bank status it received. This should allow us to remove its
snout from the Fed and the treasury.

Let GS, JP Morgan, and their likes survive in a true free market. We need
to take care of America and the American people and not the greedy,
shameless, and arrogant banksters. Are you listening President Obama?
Recommended by 588 Readers
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Congress and President Obama can do all talking they want - what matters
is their behavior. If our country does not get legitimate financial reform
and legitimate health care reform in the next few months, they will have
demonstrated they are no different than the criminals who governed our
country the past 8 years and our representative democracy will be over.
Recommended by 557 Readers

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