The Next Meltdown

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Richard Drew / AP Photo Obama came to Wall Street today to chide it for ignoring lessons, but it’s Washington that’s embracing the current system, reinflating the bubble—with taxpayer dollars, writes Nomi Prins.

President Barack Obama was right today to remind us how cataclysmic things were exactly one year ago, the day Lehman Brothers went bankrupt. Credit had died, huge banks were tanking, remaining players clambered to Washington to get cash while stomping on their competitors’ faces, all while politicians were calculating how to win elections and save global markets at the same time.

And he was right to talk about how things are improving. Fast forward a mere year and consider the following: Power banks like Goldman Sachs and J.P. Morgan Chase recently posted record profits, their stock prices are soaring, and they’ve paid back billions of dollars in TARP money.

At least before the meltdown banks were ostensibly creating their own capital, borrowing from each other or their investors. Now they’re playing with the taxpayers’ stash.

Where he missed the mark, though, was the target he went after, in terms of making sure we don’t fall back toward those dark days. Obama talked about “some in the financial industry” falling back into old, risky habits, when calling for a series of wide-ranging, but incremental reforms. First, he should have said “all.” And second, the problem right now isn’t just on Wall Street, but also in Washington, which now essentially owns our banking system, with all its misplaced risk—the exact same system that gave us the meltdown we’re currently enjoying.

• William Cohan: The Unnecessary Meltdown Specifically, the Federal Reserve, Treasury Department, and Federal Deposit Insurance Corporation have dumped $19.3 trillion into the banking system—$17.5 trillion of which went to financial institutions in the form of capital injections (like an adrenaline shot to the heart of a bank overdosing on its own risk), general market backing, federal guarantees, and cheap loans from eight major new Fed facilities in return for quasi-toxic collateral. That makes last year’s $700 billion in TARP money a mere 4 percent of the full subsidization of Big Finance and the havoc it wreaked on the rest of the economy.

And that means the next financial bubble to burst will be the federal bailout itself.

All these subsidies were supposed to prop up the biggest financial firms in order to keep them from unleashing further devastation on the general economy during last fall’s crisis period. We were told this would stabilize the banks and loosen credit for small businesses and individuals.

The exact opposite happened. Banks continued to go belly up and credit became tighter, “systemically important” banks were consolidated courtesy of the Fed and Treasury Department, and bank fees increased. And the financial goliaths that inhaled our money got their soaring stock prices, profits, and bonuses. But that part is an illusion. Even the profits themselves, announced in July, aren’t what they seem. They came from using federal capital to take more risk.

Last quarter, J.P. Morgan Chase reported record fees and revenue from its fixed-income market division, the one that does the most trading. Consumer divisions lagged behind and the company was hampered by credit problems. It paid back $25 billion of TARP funding, but retains an additional $70 billion of federal goodies—and those don’t even include whatever loans the bank received from the very secretive Fed. Goldman Sachs also announced a record $13.8 billion in revenue, $6.8 billion of which came from the division that does its trading—the risky one. The firm paid back $10 billion of TARP loans, but held onto an additional $54 billion in public gifts. Wells Fargo posted a record profit, but also showed a decrease of $20 billion in lending compared to the first quarter, and a decline in asset values.

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September 14, 2009 | 4:41pm

Politics, Obama, Economy, Business, Wall Street, Next Bubble, Financial Bubble, Wall Street Takeover, Washington Owns The Banking System, Nomi Prins, Bubble, Fed, Deficit, Lehman, Meltdown, Fdic

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sophia5

Taxpayers bailing out greedy Wall Street,
so they can deny us loans with OUR MONEY.

Taxpayers bailing out greedy incompetent Government,
wasting OUR MONEY only to demand even more.

Like getting screwed from both ends.

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The Next Meltdown

The Next Meltdown