Bigger rewards for holding the economy hostage

They are bigger and badder than ever. The heightened offensive against regulations launched by the financial industry carried forward by the new Republican Party majority in the United States Congress is one demonstration, but just in case you wish more evidence, bank profits got bigger in 2014.

The multibillion-dollar fines U.S. government agencies have assessed banks has merely dented profits, and only in some cases. Four of the six biggest banks in the U.S. — which together hold about two-thirds of all assets in the U.S. financial system — reported higher profits for 2014 than in 2013, and in the cases of the other two, it appears that an increase in fines paid was responsible for their decline in profits.

Overall, these six banks — JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — racked up a composite net income of US$75 billion on revenue of $413 billion.

The most comical comment during the banks’ announcements last week of their financial results was that of JPMorgan Chairman and Chief Executive Officer Jamie Dimon, who whined on a conference call with reporters that “Banks are under assault,” adding that “We have five or six regulators coming at us on every issue.”

Those regulators seemed to have taken it easy on JPMorgan last year. The company’s total legal costs for 2014 were $2.9 billion, compared to $11.1 billion in 2013, according to a report carried by financial news network CNBC. Nonetheless, JPMorgan’s $21 billion in profits for 2014 was considered a disappointment by Wall Street, because the fourth-quarter profit dipped slightly from the previous year’s fourth quarter. Thus, the company wasted no time in announcing that “Senior executives at JPMorgan Chase & Company are pressuring managers across the bank to cut costs,” according to Reuters.

Wall Street traders have already punished the company by sending its stock down in three of the first four trading days following its “disappointing” results. Not even Wall Street banks are immune from their own role as enforcers. Some low-level employees are about to pay for that with their jobs.

U.S. Treasury Department under new management (photo by takomabibelot)

U.S. Treasury Department under new management (photo by takomabibelot)

Never mind that the U.S. Treasury Department handed out $700 billion to Wall Street (among other measures), bailing out the very banks whose bottomless greed and reckless gambling brought on a global economic downturn now in its seventh year. A downturn paid for not by the banks, nor their executives, but through the endless austerity imposed on working people throughout the world. Not one Wall Street executive has been prosecuted.

JPMorgan has been assessed fines for a variety of crimes, among them mortgage fraud and currency-market manipulation. A compliance lawyer for JPMorgan tried to alert authorities to systematic irregularities in mortgage securities before the crash, but was ignored. Jamie Dimon, heroically holding up against the assault on his bank, earned $20 million for 2013. One suspects he will not be homeless once his 2014 compensation is totaled.

That his company will need to come up with billions of dollars by 2019 to meet Federal Reserve capital requirements, which will slow down its ability to speculate with money it doesn’t have in reserve, might just have something to do with his whining.

It pays to be a banker

The year 2014 was a very good one for banks. Here are the full-year results for the six largest banks, as reported by themselves.

• JPMorgan Chase & Company: net income of $21 billion on revenue of $97.9 billion. This was three billions dollars more than the year before, but still not good enough in the eyes of speculators.
• Bank of America Corporation: net income of $4.8 billion on revenue of $85.1 billion. The net income is down from 2013, but that appears to be due to “litigation expenses” of $16.4 billion, more than double the 2013 litigation expenses of $6.1 billion. Almost all of those extra expenses occurred in its consumer real estate division; the bank agreed in August to pay nearly $17 billion to settle charges that it sold toxic mortgages.
• Citigroup Incorporated: net income of $11.5 billion on revenue of $77.2 billion. Citigroup’s profits were lower than the year before, but the culprit is familiar — it reported legal costs of $4.8 billion in 2014, more than ten times the $430 million of 2013. Citigroup agreed in November to pay $1 billion for rigging foreign-exchange markets and agreed in July to pay $7 billion for selling bad mortgages.
• Wells Fargo & Company: net income of $23.1 billion on revenue of $84.3 billion. With profits up from 2013, Wells Fargo said it handed out $12.5 billion to shareholders through dividends and net share repurchases, five billion dollars more than a year earlier. This at the same time that many of its branch tellers can’t move out of their parents’ house because of low pay.
• The Goldman Sachs Group Inc.: net income of $8.5 billion on revenue of $34.5 billion. Those were higher than a year earlier. The average pay for Goldman Sachs employees for 2014 was $373,265, but as that includes secretaries and clerks, those involved in speculation make far more.
• Morgan Stanley: net income from continuing operations of $6.2 billion on revenue of $33.6 billion. This profit is more than double what the company made the year before, but nonetheless is not good enough. The company moved quickly to appease speculators, announcing it would cut the percentage of its revenue going to wages, pay higher dividends and buy back more stock.

What would they do if they weren’t under “assault”?

Subject to the same remorseless laws of capitalism as any other industry, the industry rapidly consolidated. The percentage of total industry assets owned by the five biggest U.S. commercial banks has increased more than four-fold since 1990. Nor is that something peculiar to U.S. banking — the five largest banks in the European Union hold 47 percent of their industry’s total assets.

The “assault on banks” must have been conducted with a wet noodle. Although by any ordinary human logic, these colossal sums of money should satiate the most asocial speculator, the remorseless logic of capitalism dictates that more is never enough, that profits have to increase steadily. Even the rate of the increase can be expected to increase.

While working at a financial news wire during the stock-market bubble years of the 1990s, I vividly recall one day when a major computer company reported a profit of more than $800 million for its latest three-month period, more than the year-earlier quarter, only for its stock price to be driven down. Curious, I discovered that “analysts” had forecast a profit even bigger, and the rate of the increase had been lower than the rate of the increase a year earlier. That was enough for speculators to lash out.

The financial industry acts as both a whip and a parasite in relation to productive capital (producers and merchants of tangible goods and services). The financial industry is a “parasite” because its ownership of stocks, bonds and other securities entitles it to skim off massive amounts of money as its share of the profits. It is also a “whip” because its institutions — stock, bond and currency-exchange markets and the firms that trade these and other securities on those markets — bid up or drive down prices, and do so strictly according to their own interests.

A management that fails to maximize profits in the short term and deliver higher stock prices in the longer term is in danger of being pushed out, not because diffuse shareholders possess that leverage individually, but because the financial industry as a whole, through the markets it controls, can sell off enough stock to make the price nosedive, leaving the company vulnerable to an unfriendly takeover by a speculator seeking to profit from the reduced value of the company. Executives who do what the “market” dictates, on the other hand, are showered with riches.

Moreover, companies with stock traded on exchanges are legally required to maximize profits for shareholders, above all other considerations. A company that fails to make a deal, or decides against selling itself to another company, is subject to being sued in courts because angry speculators will sell their stock, causing the price to decline and then complain that the company’s management failed to maximize “shareholder value.”

Governments representing the world’s four largest economies — the U.S., the E.U., China and Japan — committed US$16.3 trillion in 2008 and 2009 alone on bailouts of the financiers who brought down the global economy and, to a far smaller extent, for economic stimulus. These are the governments that are “assaulting” banks. Such is the looking-glass logic of capitalism.

11 comments on “Bigger rewards for holding the economy hostage

  1. Meanwhile back in the real world, the US retail sector continues its steady decline. Numbers don’t lie. US retailers are only selling half as many goods as when pseudo-recovery began:

    • Number in themselves may not lie, but statistics can be extremely misleading. I’m afraid the author of the article to which you linked has cooked up a conspiracy theory that does not exist. His completely erroneous contention that you should measure current and past money without factoring in inflation has led him to absurd conclusions.

      Personal consumption accounts for about 70 percent of the U.S. economy. If that spending were halved in a few years, as the author wrongly asserts, that would be a collapse comparable to the Great Depression or possibly worse. The U.S. economy is certainly weak, leading to cautious consumer spending, and the so-called “recovery” is no such thing for the 99 percent. But the U.S. is not living through a downturn anywhere near the scale of the Great Depression.

      The linked article reminds me again of the old saying: There are lies, there are damned lies and there are statistics.

      • Ed says:

        I read the linked to article. It claims that using the US governments own, non-CT, figures and its own estimate of inflation, retail sales fell by 0.9% this December. The author than uses his own inflation figures to get a 2% increase (he believes the US government understates inflation roughly by half). A 0.9% percent decrease is retail sales in December, of all months, is pretty bad in itself and calls into question alot of the claims that the US economy is growing.

        • I agree that a December retail-sale decrease is a sign of a struggling U.S. economy. You, Dr. Bramhall and I are all in agreement on the weakness of the economy as each of us is capable to looking at reality squarely. It just isn’t tanking anywhere near the degree that the linked-to article claims. Sometimes an author can get too enamored of a theory for his own good.

  2. Jeff Nguyen says:

    My favorite Jaime “that’s why I’m richer than you” Dimon quote is, “Giving debt relief to people that really need it, that’s what foreclosure is.” He and Lloyd “God’s work” Blankfein are national treasures and history will judge them as such. These guys are all robber baron without any of the philanthropy, giving back is so 2000 and late.

    Any Kindergarten teacher will tell you what happens when you give a mouse a cookie…

  3. Alcuin says:

    The “remorseless logic of capitalism.” A daily meditation on that phrase should be required of everyone on the Left – it would cut through all of the crap that we are daily subjected to and shine a powerful light on the root cause of our current predicament. I recommend the practice highly.

  4. Richard W. Posner says:

    If it mattered, which it doesn’t, all the above could be “fixed“. In realty it need never have happened.

    So both Aristotle and Plato noted the paramount principle – that the nature of money is a fiat of the law, an invention or creation of mankind. This principle, part of a lost science of money, must now be relearned in the 3rd Millennium in order to achieve the monetary reforms needed to move back from the brink of nuclear disaster, to move away from a future dominated by fraud and ugliness, toward a world of justice and beauty.” – Stephen Zarlenga, “The Lost Science of Money”

    Money is not, nor can it ever be, a commodity because it purposefully has no intrinsic value.

    Control of a nation’s monetary system must never be subjected to privatisation.

    Interest, any interest, is usury and will inevitably lead to the accumulation of endless debt, which will always result in a complete collapse of any economy.

    Once a nation parts with the control of its currency and credit, it matters not who makes the nations laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to government and recognized as its most sacred responsibility, all talk of the sovereignty of parliament and of democracy is idle and futile.” -William Lyon Mackenzie King, the tenth Prime Minister of Canada from December 29, 1921 to June 28, 1926

    As long as a nation’s medium of exchange is not a commodity, as long as it is genuine legal tender, spent into circulation debt free by a legitimate, functional government, there is a chance for an equitable, civil society, honest commerce and a truly free market. These seem to be very difficult qualifications for humans to meet, hence our long history of failure at becoming civilised.

    Everything goes to hell the moment currency is commodified and loaned into circulation, with interest due, by any private, for-profit enterprise.

    There is equal hell to pay when any privately owned and controlled commodity, which can never have a stable value, is introduced as the foundation for a monetary system.

    Fiat money is neither more nor less than a unit of measure, a tally system that keeps accurate account of goods and services exchanged. There is no profit to be made from fiat currency; that is not its purpose.

    Throughout history there have been sporadic occasions when real fiat money was used very successfully as a medium of exchange.

    In Mandarin China, where paper money was invented in the ninth century, this sort of fiat currency funded a long and prosperous empire.” – Ellen Hodgson Brown, Web of Debt, Chapter 5 – From Matriarchies of Abundance

    The growth of Rome from a small village in the eight century BC, to creator and ruler of the world order, resulted in large part from her bronze money. In the east, gold and silver were being coined as money, but Rome chose to base her money on bronze-a mixture of mainly copper, some tin and a bit of lead. And not just commodity bronze, but monetized pieces called the Nummi or Nomisma” – The Lost Science of Money, CHAPTER 2, ROME’S BRONZE NOMISMA – BETTER THAN GOLD, page 53

    The numerary system lasted for nearly two centuries, during which all that was admirable of Roman civilization saw its origin, its growth and its maturity. When the system fell, Rome lost its liberties.” – Alexander Del Mar, A History Of Money In Ancient Countries, pg 241

    The tally stick system worked really well for 726 years. It was the most successful form of currency in recent history and the British Empire was actually built under the Tally Stick system, but how is it that most of us are not aware of its existence?
    Perhaps the fact that in1694 the Bank of England at its formation attacked the Tally Stick System gives us a clue as to why most of us have never heard of them. They realised it was money outside the power of the money changers, (the very thing King Henry had intended).
    What better way to eliminate the vital faith people had in this rival currency than to pretend it simply never existed and not discuss it? That seems to be what happened when the first shareholder’s in the Bank of England bought their original shares with notched pieces of wood and retired the system.

    In 1763 the use of fiat money in the British colonies of North America brought great prosperity to the colonists. Colonial Scrip, which they printed themselves for their own use, served very well until the private Bank of England, which, through usury, had become the real ruling force of the Empire, instructed the subservient British parliament to forbid its use with the Currency Act of 1764.

    The English bankers, being informed of that, had a law passed by the British Parliament prohibiting the Colonies from issuing their own money, and ordering them to use only the gold or silver debt-money that was provided in insufficient quantity by the English bankers. The circulating medium of exchange was thus reduced by half.

    In one year,” Franklin stated, “the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed.”

    Despite disinformation to the contrary, the Greenbacks of Abraham Lincoln were highly successful. Had his monetary system been continued, as he planned, the world would be a very different place today.

    Lincoln took Col. Taylor’s advice and funded the war by printing paper notes backed by the credit of the government.

    These legal-tender U.S. Notes or “Greenbacks” represented receipts for labor and goods delivered to the United States. They were paid to soldiers and suppliers and were tradeable for goods and services of a value equivalent to their service to the community.

    The Greenbacks aided the Union not only in winning the war but in funding a period of unprecedented economic expansion. Lincoln’s government created the greatest industrial giant the world had yet seen.

    The steel industry was launched, a continental railroad system was created, a new era of farm machinery and cheap tools was promoted, free higher education was established, government support was provided to all branches of science, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent.

    The Greenback was not the only currency used to fund these achievements; but they could not have been accomplished without it, and they could not have been accomplished on money borrowed at the usurious rates the bankers were attempting to extort from the North.

    Once again, the bankers of England took matters into their own hands. They issued this public proclamation in the London Times, through Lord Goschen, spokesman of the Financiers:

    If this mischievous financial policy, which has its origin in North America, shall become indurated [sic] down to a fixture, then that government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.”

    In every case when and wherever a genuine fiat currency has brought prosperity to a society, the usurers/private bankers/money changers, have leapt to the offense and slaughtered the infant before it could grow to maturity. The same principles and tactics as are applied by the military and “intelligence” branches of the american capitalist system any time an experiment in any system independent of it shows even a glimmer of success.

    The common factor in the success of these fiat based, public economies is the absence of the practice of usury.

    But the bottom line, the real bottom line, is that there is no economic system the will stop the collapse of industrial civilisation.

  5. […] volta che Mr Dimon si è espresso sull’anno passato, si lamentò dicendo che “Le banche sono sotto assedio”, e aggiunse “ Abbiamo cinque o sei regolatori che vengono da noi per ogni questione.” Gli […]

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