Wall Street bigger and badder than ever

Being a banker means never having to say sorry. Or worry where that next million is going to come from.

Financial results are in for 2016 for the biggest U.S. banks and — surprise! — profits continue to reach the stratosphere. And with Goldman Sachs in firmer control of the U.S. Treasury Department than ever before, the good times will continue to roll for Wall Street. For the rest of us, that’s another story.

No less than six “Government Sachs” executives have been nominated to high-level posts in the new Trump administration. As a candidate, Donald Trump attacked opponents for their ties to Goldman Sachs during the campaign, but the joke is on those who naïvely believed the real estate mogul was going to “drain the swamp.” Heading the list is the treasury secretary nominee, Steve Mnuchin, who spent years at Goldman Sachs before earning the title “foreclosure king” as chairman and chief executive officer of OneWest Bank.

Occupy Wall Street (photo by David Shankbone)

Occupy Wall Street (photo by David Shankbone)

Mr. Mnuchin, who bought distressed mortgages and evicted thousands of homeowners during the financial crisis, further demonstrated his humanitarian streak when he announced that, as treasury secretary, he would oversee “the largest tax change since Reagan” and said his “No 1 priority is tax reform.” More tax cuts for the wealthy and corporations. Hurray! How many more people would pay for this by losing their ability to keep their homes was not indicated.

The Guardian, however, did report that “Mnuchin went on to sell OneWest last year for more than double what he paid the Federal Deposit Insurance Corporation for the assets in the teeth of the financial crisis.” The California Reinvestment Coalition has calculated that Mr. Mnuchin’s bank was responsible for more than 36,000 foreclosures in in that state alone, and reported he disproportionally foreclosed on seniors. It did so frequently using harassment and other aggressive tactics, even to the point of changing the locks on a senior’s home in a blizzard.

Vampire squid” indeed. Those are the sort of tactics that surely endeared Mr. Mnuchin to President Trump.

Citigroup hopes to replicate destruction of Detroit

No roundup of the year in banking, however, would be complete without the wit and wisdom of JPMorgan Chief Executive Officer Jamie Dimon. When we last checked in a year ago, Mr. Dimon insisted that declining incomes for working people was no big deal, because they are better off by virtue of possessing iPhones, while in 2014 he complained that — oh the humanity! — “banks are under assault.” As we look back at 2016, he has again provided us with comic relief.

Somehow keeping himself composed as he told Bloomberg News that “business [has] been beaten down as if we’re terrible people,” he upheld the work of banks in saving Detroit. You can’t make this up: He said, “Detroit is a perfect example where civil society, not-for-profits, government, business all work together to improve the lives of American citizens. If you can duplicate what they’ve done in Detroit around the country, you’re going to have a huge renaissance.” He finished by declaring “JPMorgan didn’t jeopardize the system. We did not cause the crisis. We have three times more capital than we had back then. We saved 30,000 jobs.”

Goldman Sachs headquarters (photo by Quantumquark)

Goldman Sachs headquarters (photo by Quantumquark)

We’ll pause here so you can enjoy a hearty laugh. There is no need to point out the tremendous damage major banks did to economies around the world, and the trillions of dollars of handouts given to them as a reward for their destructive behavior. There is little need to point out the damage done to Detroit, but as a reminder, complex and poorly understood derivatives were decisive in Detroit’s fiscal downfall.

These derivatives were sold to the city as a form of “insurance” against possible increases in interest rates, but when interest rates fell and Detroit’s credit rating was cut, hundreds of millions were siphoned from city coffers into Wall Street pockets, and the banks that sold the derivatives jumped to the head of the line of creditors. No money for pensions or government services, but plenty for financiers.

Mr. Dimon does seem to be rather well compensated for his difficulties, “earning” $27.6 million for 2015, tops among banking chief executive officers. Goldman Sachs’ Lloyd Blankfein didn’t do too badly himself, hauling in $23.4 million in compensation. Another nine topped $10 million.

Bigger and badder than ever

These bloated salaries did not, so to speak, break the banks. Once again, profits for the six biggest U.S. banks were massive — nearly $93 billion for 2016.

Here’s a breakdown of the six banks for 2016, three of which reported record profits.

  • JPMorgan Chase & Company reported net income of $24.7 billion on revenue of $99.1 billion, the bank’s highest-ever profit, beating out the record set just the year before. These massive profits led to a massive bonanza for speculators — JPMorgan handed out $15 billion in dividends and stock buybacks.
  • Bank of America Corporation racked up $17.9 billion in net income on revenue of $83.7 billion, both increases from a year ago, which, in turn had tripled 2014 earnings. Speculators did well here, too, as Bank of America ladled out $7.7 billion in dividends and stock buybacks, and plans on buying back another $4.3 billion of its stock in the first six months of 2017.
  • Citigroup Incorporated reported net income of $14.9 billion on revenues of $69.9 billion, both a little bit lower than a year earlier. But shed no tear for downtrodden speculators as Citigroup handed out $10.7 billion in dividends and stock buybacks. Five separate violations cost a total of $485 million in government penalties, but that seems to be no more than a minor speed bump.
  • Wells Fargo & Company had net income of $21.8 billion on revenue of $88.3 billion, a dip in profits from 2015 due to having to pay a penalty of $1.2 billion for shady mortgage lending practices and another $185 million in fines because of its illegal practices of opening fake accounts in the name of its depositors. Who says crime doesn’t pay? Speculators certainly won’t say that: Siphoning money from its account holders helped Wells Fargo be in a position to shovel $12.5 billion into financiers’ pockets through dividends and stock buybacks, almost equal to what it handed out a year earlier.
  • The Goldman Sachs Group Incorporated reported net income of $7.4 billion on revenue of $30.6 billion, a bigger profit and profit margin that a year earlier. The company did not break out its expenses for its purchases of the U.S. government in its latest financial report. Goldman Sachs spent $7 billion on buying back its stock and proudly declared itself first in the world in mergers and acquisitions, work that added billions to the investment bank’s bottom line while costing untold numbers of people their jobs. Profits would have been even bigger had it not been for a $5.1 billion fine for selling toxic mortgage securities to unsuspecting investors.
  • Morgan Stanley reported net income of $6.0 billion on revenue of $34.6 billion, a profit about two percent lower than that of 2015. Despite that slight dip in income, the bank somehow found the means to buy back $3.5 billion worth of its stock — a 67 percent increase from what it bought back a year ago. Morgan Stanley would have seen its profits increase for 2016 had it not had to pay $3.2 billion in penalties related to its role in the subprime-mortgage housing debacle.

Beyond the whip of Wall Street

The biggest banks not only extract more money from the rest of the economy than ever, but are bigger than ever — banks with more than $100 billion assets increased their market share from 17 percent in 1995 to 59 percent in 2014. This is the mad logic of capitalism — grow or die. Finance capital, despite being the whip enforcing trends that worsen inequality, is not immune from what it enforces on everyone else. One measure of the cancerous growth of financial products bearing little relationship with actual needs is this: In 11 business days financial speculators trade instruments and contracts valued at more than all the products and services produced by the entire world in one year.

Reducing banking and finance to a public utility would be the only way to break the grip of giant banks and financial institutions. One intermediate step that could be taken would be government banks that would fund public infrastructure projects and provide low-cost loans, and which would be the recipient of government revenue rather than commercial banks.

The Bank of North Dakota is an example of such an institution that already exists, with proposals for state banks being floated for Vermont, Washington state, Oregon and California. A New Jersey gubernatorial candidate, Phil Murphy, has made a public state bank the centerpiece of his campaign, arguing that students would benefit from low interest rates for college tuition, more loan capital would be made available and municipal governments would no longer have to pay high interest to Wall Street.

The Left Party of Germany has a detailed plan to bring banks under democratic control. Although the party’s proposal is specific to Germany, its basic ideas are transferable to any country. Any form of democratic control of an economy would be impossible without banking and finance being reduced to a public utility, and thus serving to benefit communities rather than existing as a parasite that exists to profit over every aspect of human activity, no matter the social cost.

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11 comments on “Wall Street bigger and badder than ever

  1. newtonfinn says:

    Again, let me encourage readers of this blog to take a short trip to the end of the 19th Century and spend some time with the second most popular novel of that era, “Looking Backward,” and its sequel, “Equality,” written by Edward Bellamy. Having read numerous books on socialist theory and practice, I have never encountered a clearer, more cogent critique of capitalism, nor a more precise and practical description of how a socialist system could operate. Environmental issues would obviously need to be incorporated into Bellamy’s scenario, but it easily lends itself to such adjustment. By no means am I saying that Bellamy has spoken the last word here, but what he did say, and said so well, provides a firm foundation for further thought. And reading him is not only enlightening but enjoyable, because he puts his ideas into novels that draw you into characters and stories with some interesting twists. When the most popular 19th Century American novel other than “Uncle Tom’s Cabin” drops off the map, maybe the PTB have good reason for not wanting us to read it.

    • “Looking backward” sold hundreds of thousands of copies in its day. I had to look it up because I had never heard of this book.

      Comparing the present day to Edward Bellamy’s socialist picture of 2000 leaves a wide gap, alas. According to a synopsis, the lead character of the novel “explains all the advances of this new age; including drastically reduced working hours for people performing menial jobs and almost instantaneous, Internet-like delivery of goods. Everyone retires with full benefits at age 45, and may eat in any of the public kitchens. The productive capacity of the United States is nationally owned, and the goods of society are equally distributed to its citizens.” Maybe before 2100 …

      • newtonfinn says:

        The year 2000 was chosen arbitrarily, the original (and better) choice being 3000. No synopsis can do credit to this extraordinary book or begin to capture its stunning cogency. I can promise any modern socialist who takes the time to read it, that he or she will be mesmerized by the quality of irresistible revolutionary arguments laid before the American public over 120 years ago. Much of substance has been forgotten that cries out to be reclaimed and refashioned.

  2. Arjun says:

    Great write-up. I feel like the issue of the immense and growing power of finance capital can be the primary way by which the radical left can undercut the growing proto-fascist movement in the US and reach out to disillusioned and impoverished communities in the Midwestern Rust Belt, and across rural areas. If these people were regularly confronted with the absurd facts and figures about how much the big banks are profiting from the deindustrialization and decomposition of the American masses, and how much power they have in government even under a so-called “populist” president, then they’d probably be much less quick to blame immigrants, Muslims, and black people for our problems.

  3. euclides de oliveira pinto neto says:

    Toda troca de governo nos EUA percorre sempre a mesma trilha… atacam os “banksters” e, quando são “eleitos”, fazem a mesma coisa que os anteriores – proporcionam lucros absurdos aos mesmos “patrões”… e o povo norte-americano ficará encarregado de pagar… desde 1913 é assim…

  4. Alcuin says:

    This essay is not exactly on-topic, but I thought it was so interesting that I wanted to share it. I’m not familiar with John Ripton’s ideas, but he has nailed Trump’s presidency pretty well, I think.

    • Considering the President took office less than a month ago, I find your remark obtuse, at best.

      • Awwww, a Trump supporter’s feelings have been hurt because someone wrote truthfully about his hero. Christopher, if you’d rather read propaganda, you can always go back to Fox News.

        I don’t see the linked article at all off-topic. The author writes:

        “How could a country so advanced economically and scientifically, a country of such tremendous affluence and global presence, a people of democratic will, elect an anti-democratic, authoritarian megalomaniac to the U.S. presidency? Unfortunately the answer is largely due to the same forces that resist the immediate need for a fast-track conversion to cleaner energy sources. The commanding position in global finance, commerce and culture the U.S. has had over the last century has masked some of its greatest vulnerabilities. The most obvious vulnerability is that capitalism — by its need for constant growth in profits and exploitation of natural and human resources – is simply unsustainable.”

        What could be “obtuse” about this, or the very real dangers of the Trump administration? If we don’t face reality squarely, we have no hope of solving humanity’s enormous and mounting challenges.

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