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Banks need loans too

by sfishome on September 17, 2011

Don’t hate the playa, hate the game.

According to a businessweek.com article

Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world’s largest banks depended on the U.S. central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.

The secret loans totaled $1.2 trillion as the financial crisis peaked. To put that in perspective, the previous loan balance peak of the Federal Reserve was the day after 9/11 at $48 billion.

Coincidentally, or not, the same article points out that the current outstanding balance of late and foreclosed mortgages stands at $1.27 trillion. One has to wonder whether or not a direct offer to homeowners to refinance with similarly low rates would have been a wiser move?

Who got what?
Morgan Stanley borrowed more money, $107.3 billion, then their combined profits of the previous 10 years.

Goldman Sachs, which in 2007 was the most profitable securities firm in Wall Street history, borrowed $69 billion from the Fed on Dec. 31, 2008

Societe Generale, France’s second-biggest bank, borrowed $17.4 billion in May 2008, four months after one of their traders, Jerome Kerviel, lost $7.2 billion on “unauthorized” stock-index futures bets.

Citigroup’s total borrowings was more than twice the federal Department of Education’s 2011 budget, and on average had a daily balance at the Fed of almost $20 billion.

The result of creating the Global Financial Crisis and needing to be bailed out in 2008 and early 2009 was a 17% increase in bonuses on Wall Street to $20.3 billion up from $18 billion in 2008. The average bonus at Goldman Sachs, Morgan Stanley, and JPMorgan Chase went up by 27% to $340,000. Bonuses could be earned because the Fed’s lending was so cheap that record profits could be gleaned on the spread.

Wage Divergence
In 2008 Wall Street accounted for 5% of New York City’s jobs, but 24% of the wages earned.

Since 1975 financial workers wages have increased 6 fold. But the trend really took off immediately following the 1987 stock market crash and stayed on an excellerated pace through the 90’s and oughts. During this excellerated period, average American’s wages were flat to down. The average household’s wages had a nice run up ’93 to ’99 but wages began dropping sharply in 1999 and are now below 1987 levels. In other words, crime pays. Nose to the grind stone does not.

Some of the reforms proposed have been delayed because the banks don’t have the funds to meet them. For example it is proposed that banks keep enough cash and liquid assets on hand to survive a 30-day crisis, and another that requires lenders to keep “stable funding” for a one-year horizon. The first won’t kick in until 2015, the second until “at least” 2018 because banks showed they would have to raise as much as $6 trillion in new long-term debt to comply.

Europe’s 2008
And now the Fed turns to Europe’s current crisis…. making loans available to the 17 nations who use the Euro currency.

As Congressman Walter Jones of North Carolina, said:
“Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?”  but “They get help when the average business person…. can’t get a loan.”  Or the average underwater borrower or would be buyer for that matter. But hey, banks are people too – right?

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