"JPMorgan Chase & Co (JPM) has reached a tentative resolution of all civil mortgage-bond related matters with the Department of Justice under which it will pay a record $13 billion, a person familiar with settlement talks said."
Saturday, October 19, 2013
So Who Gets The Money?
13 BILLION won't fit under the mattress. So where does it go?
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I had to go in the back door to write this post. There are spider webs there, and the hinges creak. Spooky!
ReplyDeleteIt's as if Obama gave blogger a free phone and an EBT card...why work when he can sit home, lay around in his bare script, scratch his code when it itches, and gobble up comments?
Yeah, it's acting up a bit. And the comment sidebar is running behind a bit, too - meaning that the RSS feed itself is a bit slow.
Deleteimgw:"http://imgs.xkcd.com/comics/computer_problems.png"
DeleteBanks and government have captured each other.
ReplyDeleteGovernment will to everything they need to to keep the big banks from failing.
And whenever, and however, the banks make profits, the government will help itself to a big chunk of it, for transgressions real or imagined. (Imagination not necessary in most cases, the transgressions are real enough.)
Your first sentence might say it all. However, the logic of the government in pursuing JP Morgan Chase and Bank of America for the transgressions of firms they purchased on said governments pleading is dumbfounding. Every dime demanded of JPM or BofA by the government is a dime that will not be lent out to a business, or home buyer, or business line of credit, no...it will go to some inane project in government.
DeleteI wish it was a Constitutional requirement than any and all fees, fines, and penalties, other than ordinary taxes, be listed line by line as to what was done with that money, who got it, why and so forth....for all levels of government.
Not than anyone would enforce it even if it was the law.
"Every dime demanded of JPM or BofA by the government is a dime that will not be lent out to a business, or home buyer, or business line of credit, no...it will go to some inane project in government."
ReplyDeleteYou had any doubts that this was the aim of the whole thing?
Yes, and there are some additional twists to this...
DeleteBanks operate with a certain amount of capital - too little and they go bust, too much and they're not profitable - and so have a hard time retaining the (tangible equity) capital they need. Meaning, a certain amount of bank profits must be paid out (on common equity, and preferred, and as coupons on bank debt) or that capital (equity and debt) will be sold on the market and the capital of other banks which do pay returns will be purchased (and driven up in price).
It's an equilibrium, but one which favors excessive risk taking - you have to be as crazy as your peers - operate with as little capital as they do. And as little margin for error. Too little.
When things are stable (as, believe it or not, they are now) there is immense pressure to pay out capital, or expand the risk weighted balance sheet (loan more). So yes, loans are one possibility.
The terror is not that the banks loan officers are deliberately choking off loans. They are not. The estimation that there aren't a lot of good risks out there is more or less correct. Also, there is less demand. (It's possible to over-play this story; I've got some evidence that both loans and demand for loans has picked up - gradually - over the last few years. Below trend perhaps... but then the trend wasn't very sustainable, was it? Point is, "can haz moar loanz" is not necessarily a good thing.)
In any case, for whatever reasons, good or bad (likely both), the banks' retained earnings exceed their need for capital. And so it gets paid out.
And the "new normal" is, first the bankers are paid their bonuses. Then the government comes in and fines the crap out of what's left. It's accounted for as a "one time" earnings hit, and the bank analysts go back and tell the shareholders to hang on, because record profits and recovery is just around the corner. Lucy with the football.
Businesses wanting loans are screwed. So are shareholders (which are often pension funds - public (e.g. CALPERS) and private - holding huge baskets of equities, which hold a lot of bank stock simply because it constitutes a good chunk of the stock market as a whole).
Bankers and politicians make out fine. The bankers could care less that they pay out fines - they themselves (unless they screw up royally like Bruno Iksil, the "London Whale") get paid awesomely. The government gets a slush fund. Ruling class rules like a boss.
Much more on JPM from Yves Smith at Naked Capitalism.
ReplyDeleteN.B. she's pretty left-liberal, but more old-school left liberal. Still, her post on the JPM "settlement" is informative.
Just compensation for economic value created, or a cartel-enabled grift and embezzlement?
ReplyDeleteBanker pay in NYC.
I report, you decide...
[n.b.: I yield to nobody in my free market compensation enthusiasm. If someone is worth $10M, they're worth $10M. People bemoan the salaries pro athletes get, but if those athletes get people to pay for season tickets, and the owners can still make a profit, why shouldn't the stars go home with a big chunk of the revenue?
It may be unpalatable, but I don't see it as unfair. The playing field is open to anybody and it's damn hard to fake your way through pro sports and once you lose your game, you're out.
Banking is a closed cartel, which taps insiders and does not adequately punish poor performance and destructive decisions. It's very difficult to get into this space unless you know the right people and go to the right schools, and once you're in, you're in. And your children can be "in"...]
My disagreement with pro athletes is how much taxpayer subsidy is needed to pay those salaries: sweetheart deals for the use of taxpayer funded stadiums, etc.
DeleteI do agree with the principal, however -- as long as the athletes or whoever are really supporting the businesses that pay those salaries.
Matt, good point - but isn't your beef primarily with the owners, then? They've got the bottom line equity upside on the returns to that subsidy; the athletes are just on salary - huge, and enabled by that subsidy, but limited upside nonetheless.
DeleteFurther, it's not a pure expense to the cities - there are definite benefits, tangible and intangible - to having stadiums. (Look at the returns on the Colosseum in Rome: still generating a tourist cash flow like 1800 years after construction!)
My point though isn't to argue that they're totally deserving. My point is that I believe that if one is to be an advocate of free markets and compensation commensurate with the profit, then one is obliged to support that system not only when the outcomes seem right, but also when those outcomes causes one to throw up in one's mouth a little... which, to be sure, the thought of (some of) these clowns with all that money does.
...and so I'm searching for objective and reasonable points of differentiation between the bankers and the athletes.
If the athletes were the team management, and the shares in the team were held by the public, and if the board of directors (comprised of ex players) voted huge compensation to the current players, and the city offered subsidies with one hand and fined away the residual profits with the other hand so the (public) shareholders got nothing, then I'd say the position of bankers and athletes would be more comparable.
Ten MLB teams worth more than $1B.
DeleteI would have to say that my gripe is with the industry, owners and players.
DeleteWhen the new baseball stadium in Seattle was built, the sales tax for restaurants in King County went up half a per cent over the normal sales tax. We were told that the new stadium would generate tons of new revenue to make it worthwhile. I can't help but ask, though, if revenue was going to go up, then wouldn't tax revenue go up as well? And if tax revenue was going to go up, then why did the tax rate have to go up? They knew the revenue really was not going to go up? It did not make sense.