The nation is agog.
A year ago, Wall Street was on its deathbed–having played a large role in helping the country and financial system nearly destroy itself. But just as Wall Street began to pay the price for its own stupidity, Washington D.C. rushed to the rescue. A year later, a few firms are once again paying out record bonuses.
Even more galling: The banks aren’t lending money to Main Street, which was the stated reason for saving them in the first place. They’re just minting it borrowing for free from the taxpayer (Fed) and collecting interest on old loans. And, of course, they’re trading for their own accounts.
Nothing surprising about that, of course: You can’t blame Wall Street for taking free money. Any sane person would do the same. And we have only Washington to thank for it.
The problem with the ludicrous policy “too big to fail” is finally revealed…
Graham Bowley, NYT: [O]ne of the most powerful forces driving the resurgence on Wall Street is not the banks but Washington. Many of the steps that policy makers took last year to stabilise the financial system — reducing interest rates to near zero, bolstering big banks with taxpayer money, guaranteeing billions of dollars of financial institutions’ debts — helped set the stage for this new era of Wall Street wealth.
Titans like Goldman Sachs and JPMorgan Chase are making fortunes in hot areas like trading stocks and bonds, rather than in the ho-hum business of lending people money. They also are profiting by taking risks that weaker rivals are unable or unwilling to shoulder — a benefit of less competition after the failure of some investment firms last year.
So even as big banks fight efforts in Congress to subject their industry to greater regulation — and to impose some restrictions on executive pay — Wall Street has Washington to thank in part for its latest bonanza.
“All of this is facilitated by the Federal Reserve and the government, who really want financial institutions to get back to lending,” said Gary Richardson, a research fellow at the National Bureau of Economic Research. “But we have just shown them that they can have the most frightening things happen to them, and we will throw trillions of dollars to protect them. I have big concerns about that.”