Banks: Heads They Win, Tails We Lose, As Usual

Banks: Heads They Win, Tails We Lose, As Usual

Throwing good after bad...
I wrote a draft of this post at the start of the year but eventually shelved it because I thought it mightn't hold much interest for the Plain People of Ireland. But now here we are, coming to terms with the horror of impending financial disasters as they spread across the Eurozone–and Bock talking about Armageddon–maybe it's time to catch up on what Uncle Sam has been up to.

You will recall that the U.S. gave as much as twenty-five billion dollars each to companies like Goldman Sachs, CitiGroup, J.P. Morgan, and Bank of America, for no particularly good reason.

This week, Jon Stewart of The Daily Show picked up on CNN's report of how these companies have been faring through the tough times, and highlighted their performance during the last quarter. It seems all of these companies have made a profit. Well, no surprises there.

But that's not all; they each had traded in the black for the previous 61 consecutive days, posting no losses whatsoever at any time, even when the Dow Jones plummeted a thousand points in just twenty minutes last week.

A thousand points, folks.

Meanwhile, J.P.Morgan still averaged profits of $118M per day. Do they know something we don't? Ha ha ha! Of COURSE they do. But here's something you may not know.

The Federal Reserve is currently lending capital to the big banks at the nice round number of 0% interest (Hint: that's free money). And what are they doing with this cash? Well, the banks are buying shedloads of U.S. government treasury securities and reaping the returns.

So this is the nub, the banks are lending the bailout money back to the government to help pay for TARP (which is their version of NAMA, i.e. the bailout). And they're earning money on the interest. Brilliant.

What I had intended to comment on back in January was the state of the treasuries market. For those of you who don't know how it works, here's a quick summary.

Many years ago, the right to print U.S. dollars was handed over to a shadowy private bank with a fake official sounding name (the Federal Reserve). They essentially lend dollar bills to the U.S. government at interest, and that's how inflation comes about().

The system is such that in exchange for the money, the Fed receives U.S. treasury bonds which it then sells for profit. Unfortunately, there were no buyers last year so the Fed purchased 80% of all 2009 bonds themselves–artificially propping up their value. This is known as a Ponzi scheme, and even MSNBC have admitted as much.

So, how bad is it really?

Well, now that the Fed have included the banks in this scheme, by my back-of-the-envelope calculations, this will spiral horribly out of control by, say, next Thursday week when martial law will be declared in Washington and we will finally witness the Rapture and an eventual zombie apocalypse.

It's about time!

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Endnotes:
  1. By the way, every single penny paid in U.S. income tax goes to the Federal Reserve in payment for this 'loaned' money, for which the taxpayer receives no benefit whatsoever. [back ↩]