Monday, July 27, 2009

Wall Street profits soar

Wall Street profits soar

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Goldman Sachs reported quarterly earnings of $3.4 billion on July 14. JP Morgan Chase reported $2.7 billion in profits on July 16. The next day Bank of America reported a quarterly profit of $3.2 billion and Citigroup $4.3 billion.

Goldman Sachs told the New York Times July 15 that “it had earmarked $11.4 billion so far this year to compensate its workers,” which average $770,000 per worker. Lloyd C. Blankfein, its chief executive, is quoted saying, “We pay for performance.”

While Goldman Sachs received Troubled Asset Relief Program bailout money, which it has repaid, it and other banks have substantially benefited by being able to issue debt cheaply because the Federal Deposit Insurance Corporation backs it.

Goldman Sachs has also gotten tens of billions of dollars from AIG (the American International Group) when it was paid 100 cents on the dollar for its bets on securities that turned sour. Estimates of the total payout Goldman got from AIG range from $13 billion to $40 billion.

AIG is now essentially controlled by the U.S. government. While Blankfein didn’t admit it, this government backing is certainly a performance-enhancer.

While JP Morgan Chase has repaid its TARP funds, Bank of America and Citigroup have not, and their financial position is a lot shakier. They are more susceptible to credit card and home-equity defaults.

Workers are still losing their jobs, even with the “stimulus” package, which indicates the production of goods and services is declining, a sign of a deepening recession. It also means that workers can’t pay their bills or their mortgages.

According to a report released July 16 from the Government Accountability Office, which is part of Congress, the government has spent $339 billion on TARP, out of the $700 billion allocated, and has promised $102 billion more. That leaves $259 billion in the fund, plus $70 billion that the banks have repaid.

Bailout vs. ‘chaos in the streets’

An interchange between former Secretary of the Treasury Henry Paulson and the House committee investigating the formation of the TARP explains why the Bush administration so quickly devoted over $700 billion to the TARP bailout.

Paulson said: “If you have a situation where a banking system is frozen and money can’t move between financial institutions, what ultimately happens is that every business, even businesses that seem to be solvent and small businesses across America, will not be able to fund their inventory. They won’t be able to meet their payroll.

“You will have a—when a financial system breaks down, the kinds of numbers that we were looking at in terms of unemployment was much greater than the numbers we’re looking at now. People in the streets ... but if we had a meltdown of the system, this could even lead to chaos or people even questioning the basic system.” (Wall Street Journal, July 16)

Paulson knows in his bones that the health of banks, which concentrate and disburse money—the lifeblood of the capitalist process—is key to the health of capitalism. What is surprising is that he feared a rapid rise in joblessness in the midst of a financial crisis would lead to people in the streets taking and demanding actions that would challenge the current capitalist system.

The current banking system is still fragile, and could collapse under the weight of the recession, but parts of it are doing well. Foreclosures and defaulted real estate loans are still a big problem, both for the capitalists who see their system crumbling and workers who lose their jobs, then their homes, and see themselves and their loved ones suffering.

It’s not surprising that the Obama administration came up with a $75 billion program to reduce foreclosures and released details on it in early March. However, this program has created only 190,000 mortgage modifications with lower monthly payments, according to the Treasury Department. Many homeowners complain about unreturned phone calls and inaccurate information from lenders. (USA Today, June 18)

During the time Pres. Barack Obama’s plan has been in effect, lenders either have started or advanced foreclosures against more than 1 million homes, according to RealtyTrac. About 20 percent of these actions were completed, resulting in homes repossessed by the banks. The Center for Responsible Lending says 2.4 million U.S. residents are at risk of foreclosure in 2009, and 8.1 million could face foreclosure over the next four years.

Figures on the effect that foreclosures have on renters in properties seized by the banks are hard to come by, but tens of millions of people are at risk.

In New York City, where 1 million apartments have government-regulated, lower-than-market rents, many hedge and equity funds have been speculating by spending hundreds of billions of dollars on rental apartments in the hope of being able to drive out regulated tenants by means fair or foul. (New York Times, July 15)

While bankers have poured vast sums of money on fancy schemes to dice, slice, automate and disguise their transactions, creating derivatives over derivatives in deliberate mishmashes of such complexity that it is hard to tell who owns what, workers living in their mortgaged homes know they have to pay every month.

But one thing is very clear. Without workers creating surplus value for the capitalists to expropriate, bankers would be out of a job. And when they are, when the whole intricate system they are so integral in maintaining and directing is replaced, then the allocation of resources will be far simpler and far fairer for working people.

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