Sometimes, the audacity of President Barack Obama’s dishonesty is truly breathtaking. Obama maintains that Mitt Romney is a candidate of, by, and for the wealthy. But it is Obama and Federal Reserve Chairman Ben Bernanke who are, quite literally, stuffing money in the pockets of the big Wall Street banks – and padding bonuses for wealthy bankers.
The numbers don’t lie. For the third quarter, J.P. Morgan recently reported a record profit of $5.7 billion – a 34% increase from the same period a year ago. Not do be outdone, at Wells Fargo, third-quarter net income rose to a record $4.9 billion – up 22 percent from a year ago.
How are these banks making so much money in such a weak economy? Government largesse – courtesy of Obama, Bernanke, and Democrats in Congress. This post will focus on just two of the many government programs designed to pay off the big banks – the federal reserve’s Quantitative Easing program (currently in its QE3 version), and the Dodd-Frank Act.
Chairman Bernanke’s QE3 is supposed to work like this. The Federal Reserve gives the big banks money at close to zero interest. Then the banks are supposed to make loans to businesses and home buyers at similarly low rates. There is a term for this sort of program –trickle down economics.
But instead of the big banks passing along the Federal Reserve’s low interest rates, the banks can keep making loans at higher rates and pocketing even bigger profits. As Reuters has noted, economists at TD Securities report that this is exactly what is happening. The economists write that “since the QE3 announcement, our calculations suggest that banks have passed through an average of just 40% of their lower funding rates (i.e. lower MBS yields) in the form of lower mortgage rates.” Banks are keeping interest rates relatively high, which, of course, generates those windfall profits. As a result, QE3 boils down to one exorbitantly expensive welfare program for big banks.
And then there’s the Dodd-Frank bill. Think about it. Chris Dodd and Barney Frank are two guys firmly in the pockets of the big banks. In fact, Dodd even received a special, sweetheart loan (what we used to call a bribe) from Countrywide Bank. And now they’re going to regulate those banks. Next, the Democratic Party will be sending foxes to guard hen houses.
The Dodd-Frank Act is Democratic bureaucrat’s dream – a 2,319 page administrative nightmare. But two important points. First, the Dodd-Frank act designates certain big banks as too big to fail. In others, words when those banks screw up again, we the taxpayers are on the hook for the loss. This sort of protection virtually guarantees that these bankers will pump up their bonuses by chasing risky investments. For the big Democratic bundlers on Wall Street, there’s virtually unlimited return with no risk, since they are guaranteed a bailout by law. For taxpayers, it’s just the opposite. No wonder Obama had so many $40,000-plate fundraisers to attend on Wall Street!
Second, and even more importantly, the Dodd-Frank Act puts small community banks out of business. The act imposes a regulatory maze and draconian reporting requirements. With a $5.7 billion quarterly profit, JP Morgan can hire an office full of people to fill out Obama administration paperwork. Your local community bank can’t afford to do that.
This leaves community banks with very limited options. They can go broke. Or a too-big-to-fail Wall Street bank can buy the community bank, for whatever low-ball price the big bank want to offer.
The too-big-to-fail banks are about to get a lot bigger. And with less competition, your banking fees are about to get a lot bigger, too.
None of this really should come as any real surprise. After all, the Obama administration has declared war on coal miners – of all people. Meanwhile the administration has shoveled buckets full of tax dollars to its big campaign bundlers through the “green energy” program. $535 million to Solyndra, now bankrupt. $249 million to A123 Systems, which declared bankruptcy last week. $528 million in “loans” to Fisker Automotive to build electric cars – in Finland. And on and on. Maybe we should start calling this the “green bankruptcy” program. But at least the next time Obama talks about a presidential candidate who only cares about wealthy campaign bundlers, you’ll know our President is talking about himself.
For more on this subject, see my You Tube video at http://www.youtube.com/watch?v=w8ZHL7U6OQw&feature=youtu.be
David Steinberg, Professor of Law