The Bottom Line on Wall St. and Bank Profits
2009 was one of the very best years in history for the financial industry, with over $50 billion in profits for the top half-dozen firms alone. Forget for a moment about the fact that this industry was literally saved from death with taxpayer dollars. The real question is, what are they there to do?
The short answer to that question is that the financial industry exists to make capital available, and to allocate it efficiently to productive uses in the real economy.
Instead, what did the financial industry do to make its money? The Wall St. firms ran proprietary trading programs as never before, and they raked in huge fees underwriting issues of debt by the largest corporations, who used the money to improve their balance sheets but not to invest in new productivity.
The old-fashioned banks spent the year lending Fed funds to the Treasury, profiting risk-free from the steep yield curve.
In short, the provision of capital and sound allocation decisions delivered to the real economy fell far short of justifying the financial sector’s huge profits. As it has been for some time (at least two decades), this industry, in significant measure, is a parasite.
When will that change? As soon as the industry stops being so good at manipulating the political process and the regulators, and as soon as Washington stops needing Wall St and large banks to finance its headlong plunge into control over more and more of the economy.