22 Jul 2009

American banks’ ‘amazing steal’

“I think the banks have pulled one. They maybe didn’t plan on it, but looking back it’s quite an amazing steal…

“The banks got an amazing deal last September, they were rescued by the taxpayer, and then refloated themselves giving the taxpayer very little of the upside and now they are going to have very high profits and pay themselves bigger bonuses,” says Simon Johnson.

That’s the view of American banks, not from a leftist, or a European, or Hugo Chavez, but the man who was chief economist of the International Monetary Fund just last year.

That America’s banks have carried off an “amazing steal” from the US taxpayer.

To an outsider in America, such as myself, the mainstreaming of anger against the banking elite is quite shocking. It’s not just him. I also met David Rothkopf, a Bill Clinton appointee to the Department of Commerce. He said:

“The banks took the money they restructured, some of them fell, but those that stayed behind didn’t just have a bonanza, but one of the biggest bonanzas in their history… so people are asking: ‘were they telling the truth?’, and ‘where’s our share of the bonanza? …. How can it be when they wreck the economy, we are responsible to these rich guys in their time of crisis, but they aren’t responsible to us?”

That is a rather typical response to the bank reporting season in the US. The banks that are still on their feet are cleaning up. Today Wells Fargo announced an 81 per cent jump in second quarter profits. Last week, Goldman Sachs and JP Morgan made billions of pounds and set billions aside for banker bonuses. This would be uncontroversial in normal times.

I remember when, as a young graduate I went to New York to visit friends. Bankers were looked up to, respected, even allowed privileged entry to the Big Apple’s hippest clubs with a flash of their Lehman Brothers’ pass. My sense now is that it has changed utterly.

The banks are beginning to see the light at the end of the tunnel of the subprime crisis. The problem is that for ordinary Americans the crisis is undoubtedly getting worse.

Unemployment will top 10 per cent by autumn, and higher on other measures. That is a Eurosclerotic level of unemployment, but without the European-style welfare system. Homelessness in DC, which has always been an issue, is visibly worse.

Ordinarily the American dream endures a recession through internal migration. Go to California, find a job, and build your house. Now that dynamic is greatly undermined by the housing crisis. If you are in negative equity, or can’t get a mortgage, it’s rather difficult to move to the jobs.

In Baltimore, Pamela Ball looks wistfully at the now empty townhouse recently repossessed by Wells Fargo. “It sits here empty and it really breaks my heart”, she says. Pamela Ball’s American nightmare is a symbol of how it is no longer accurate to call this a subprime crisis. It is a generalised housing crisis, with prices still falling. Prices had not fallen across America in the entire post war period. The uninterrupted run of rising house prices underpinned America’s consumption economy, its role as the world’s consumer-of-last-resort.

So that is my first impression of the US from this visit. Fundamental axioms of American economics and politics appear to be under threat, the essence of the American dream itself.

The banks may have moved on from subprime but the America that can consume so much on credit, the America that automatically lionises the success of wealthy bankers, the America we have known for so long, appears to be changing too.

12 reader comments

  1. My Little Phony says:

    This was bound to happen and not just to banks. Any company that stayed on it’s feet whilst the competition went out of business has the opportunity to go after the failed firms customers.

    Quite a windfall for some methinks.

    Time for a windfall tax methinks.

  2. Derek Gathercole says:

    Surely if the banks whether they be in the UK or the USA if they’re now boasting of record profits shouldn’t the respective governments be taking the lion share of those profits in repayment of the bailout loans made by those governments.

  3. Luke Knight says:

    But how long will this banking “recovery” last. Apart from the problems with subprime residential property, commercial property prices in the US still appear to have some way to drop which will result in further enormous losses for US banks. Expect more oscillations in banking sentiment.

  4. phil dicks says:

    ‘…appears to be changing too’. Maybe it’s a semiotics/semantics thing: thinking of the West as dreams&frontiers, etc. It was/is/will be a working economy, after all. Maybe our (and the U.S’s) use-of-language
    has to change, to see that country in more objective, less grandiloquent terms. To see it perhaps, as dull-in-its-functioning.
    I’ve never been to America, so all I know is Hollywood and pop songs. This has served right and left critiques.
    Where and what, exactly, is America?

  5. Anthony Martin says:

    The American ‘Dream’ is a ‘ Living Nightmare’.
    I have said time & again, Unrestrained Capitalism is the slow road to hell and, all the inequality, hatreds, fat-cat dominance, corruption, crime, homelessness, social divide and political corruption is an indicative manifestation of this. Greed & corruption rules.
    People only realize they should have resisted & challenged all the above, when it’s too late & they’ve become powerless, pathetic, weak and regretful.
    The world is in a collosal mess of inequality because of the greedy corrupt few that include corrupt governments in the west.

  6. Bob Goodall says:

    Hi,
    could I argue that the profits of the Banks are paper ones based on unethical accounting? If they had any scruples these banks might first help the people they have dropped in the soup before helping themselves to the taxpayers money. Once they have done that they could talk about making profits,
    best wishes

  7. Adil Hasan says:

    So, a question that begs itself:
    If the financial institutions are so critical to the economy and should be rescued at all cost are now making healthy profits then why are we seeing wage-freezes (actually negative increases since the fools in charge of transport, or the utilities are happy to justify increases in their ‘services’), company closures, job losses?

    Shouldn’t we be seeing miraculous growth?

    I still believe that the fools in the financial institutions (and they really are fools if they were not able to see the slump coming) need tight regulation. They do not work in the interests of any country’s economy. At best the country’s businesses hang onto the coat-tails of these global institutions and pick-up the crumbs these greedy institutions drop.

    More stringent regulation based on ethics (I for one am not keen on my money being invested in Shell or other companies who are happy to prop-up corrupt regimes for quick profits).

  8. Number1BadBoy says:

    Anything about the $2 trillion that the Fed lent out but now refuses to document publicly? Where this money went nobody knows.

  9. Davina Armstrong says:

    Mr Islam, by failing, at every single opportunity, to mention the same ETHNICITY of one after the other after the other of these bloodsuckers…are you in COLLUSION with them?

  10. Dennis Junior says:

    Faisal:

    True statement, USA Banks are amazing steals…..

    =Dennis Junior=

  11. A.M. Wooster says:

    All banks (Western banks, I don’t know about islamic banking) are robbers. They invent money, then lend it out at interest. That makes them worse than forgers, who just invent money and spend it. Banks lend money that they have invented against security, i.e. real property (land, houses, shares, ships, factories, etc.) and then don’t invent enough money to pay them back. Hence someone has to lose his property to them. The banks can buy and do buy anything they want with their own IOUs but they do not redeem these IOUs themselves, that has to be done by working people! It’s a brilliant scheme but totally evil. It gives the banks the power to dominate everyone and every thing, and boy! Do they?

  12. A.M. Wooster says:

    Ask yourself “Who benefits and who pays?” Then ask yourself “Why do slumps happen?” Then ask yourself “Who is in control of the money supply?” & “What is wealth (as opposed to money) and who makes it?” When you have answered those questions (Clue: the answers are all in the elementary textbooks of economics, the encyclopedias and common sense) I think you will understand what is going on, or to put it another way, what is being done to us and why.

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