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Government Helps Fuel a New Era of Wall Street Wealth





deanhills
I was wondering how come the stock exchange was rebounding in big leaps while unemployment numbers were still in the doldrums, until I read an article in the New York Times: Bailout Helps Fuel a New Era of Wall Street Wealth.
All of it makes sense. Tax payers (via Government in Washington) bailed out the financial houses, who instead of putting the money back into communities in the form of loans, plowed it back into a new era of Wall Street wealth. Strictly speaking the "new era wealth" should be shared with the tax payers who bailed out the banks. Instead, do they really care about the tax payers? And was this not at the heart of how the original collapse had happened in the first place? Greed and corruption with Government blessings and backing?

Quote:
Many Americans wonder how this can possibly be. How can some banks be prospering so soon after a financial collapse, even as legions of people worry about losing their jobs and their homes?

It may come as a surprise that one 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 stabilize 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.”
liljp617
Just out of curiosity, were you expecting to see a noteworthy decrease in unemployment already?
ocalhoun
A lot of that 'wall street wealth' actually does belong to the little people. When the stocks go back up, people's retirement and savings accounts recover some of the losses they've had recently.

There are fat-cats up there getting ridiculously rich by having bought-and-paid-for politicians at hand, though.
lagoon
It's happening here in Britain here too. It's a disgrace.
deanhills
ocalhoun wrote:
A lot of that 'wall street wealth' actually does belong to the little people. When the stocks go back up, people's retirement and savings accounts recover some of the losses they've had recently.

There are fat-cats up there getting ridiculously rich by having bought-and-paid-for politicians at hand, though.
What about the unemployed people though, and those who had to sell their stocks at rediculous prices? Who bailed them out? The Banks? The Government? Surely if we really want to be just, the Banks should return a percentage of their newly earned profits on the stock markets to the people who bailed them out. Like starting a new auto manufacturing company for example so that they can employ the newly unempoyed auto workers.

If the banks had recovered without Government bail-out as in a proper capitalist system, then that would have been different. But it would appear that socialistic practises have been used to bail out capitalism with no regard to the inidividuals who got "sacked" in the process, literally.
ocalhoun
deanhills wrote:
ocalhoun wrote:
A lot of that 'wall street wealth' actually does belong to the little people. When the stocks go back up, people's retirement and savings accounts recover some of the losses they've had recently.

There are fat-cats up there getting ridiculously rich by having bought-and-paid-for politicians at hand, though.
What about the unemployed people though, and those who had to sell their stocks at rediculous prices? Who bailed them out? The Banks? The Government? Surely if we really want to be just, the Banks should return a percentage of their newly earned profits on the stock markets to the people who bailed them out. Like starting a new auto manufacturing company for example so that they can employ the newly unempoyed auto workers.

It would be more appropriate for a bank to finance an auto company, rather than create one.
And of course, the unemployed don't have much in the way of stock portfolios... though conversely, they don't get hurt much when stocks drop.
And those who had to sell at bad prices? Well, when playing the stock market, it is possible to lose. Anyone can be a victim of bad luck or bad planning, even the fat-cats.

Who bailed them out? Well, that's a problem of bail-outs. Now, everybody who's doing badly is asking, "where's my free money from the government?"
deanhills
ocalhoun wrote:
It would be more appropriate for a bank to finance an auto company, rather than create one.
Exactly, that was the point of the article. Banks seem to be OK with putting money in stocks and shares, but very reluctant to provide loans that are necessary, especially for those who have proven records of making it. So basically the Government had bailed them out when they had "bubble" problems, and instead of now providing loans, they are partying again, as they have before.

A good question to ask is how necessary had it really been to bail these banks out, if there recovery has been so swift? Also the selection of banks who received bail-outs vs those who did not, seemed to have benefitted the ones who had been bailed out. All of it smells very rotten to me.
menino
I know that banks are misusing the bailout from taxpayers, but, I'm just thinking that maybe washington hasn't really digged into the actual requirements of the banks balouts.
I mean the main concern is that if banks in america fall, that will devastate the economy even more so, so I believe that govt thinks that at least by bailing out the bank for the mean time, the economy is saved (for the time being).
In regards to financing the auto company, thats an even bigger problem, as the auto co's will eat up the money as they did till now. even if banks can lend money to auto companies, I think the auto's need to show a better return on investment and a better business plan.
In retrospect, the economy is also a bit dependent on these auto co's, but which will affect the economy more, the fallout of the bank, or the fallout of an auto co.? Rolling Eyes
deanhills
menino wrote:
I know that banks are misusing the bailout from taxpayers, but, I'm just thinking that maybe washington hasn't really digged into the actual requirements of the banks balouts.
I mean the main concern is that if banks in america fall, that will devastate the economy even more so, so I believe that govt thinks that at least by bailing out the bank for the mean time, the economy is saved (for the time being).
In regards to financing the auto company, thats an even bigger problem, as the auto co's will eat up the money as they did till now. even if banks can lend money to auto companies, I think the auto's need to show a better return on investment and a better business plan.
In retrospect, the economy is also a bit dependent on these auto co's, but which will affect the economy more, the fallout of the bank, or the fallout of an auto co.? Rolling Eyes
Right, in the meanwhile those guys are still unemployed. The Big Banks are roaring with money, and Washington DC is awfully quiet about it all.
ocalhoun
menino wrote:
I know that banks are misusing the bailout from taxpayers, but, I'm just thinking that maybe washington hasn't really digged into the actual requirements of the banks balouts.

I remember the idea was to bail the banks out, then work on legislative reform and new regulations to prevent the causes of what happened.

How's that coming along? Have I missed hearing about it, or did we all just forget about it because the stimulus was over, and we wanted to argue about health care now?
Ophois
ocalhoun wrote:
I remember the idea was to bail the banks out, then work on legislative reform and new regulations to prevent the causes of what happened.

How's that coming along? Have I missed hearing about it, or did we all just forget about it because the stimulus was over, and we wanted to argue about health care now?
Yep. It's like a huge game of 'three card monty'. As long as they keep us distracted with health care, we will forget about fixing other problems, and after the health care crap is signed(or scrubbed), there will be yet another distraction to keep us from addressing the original issues.
deanhills
I wonder how many of the decision makers in Government have a vested interest in the Big Banks, either directly through large holdings, or through friends on the Boards of Directors, also how many of those decision makers have lots of stocks and shares, that are either held by those Banks, or through investments in those Banks? I believe the real estate bubble loans originated through Government in the first place for example? I wonder how many of the decision makers purchased shares in the banks that got bailed out? Wonder if any investigations have been made into that?

So yes, Ocalhoun has a very good point. What has happened about taking care of there not being a repeat, AND more important, are we now getting into a repeat situation? As those guys who had been bailed out are the ones partying now, and they are getting especially bigger since there were a few investment banks and smaller banks who bit the bullet. Guess who are taking care of their former clients?

And yes, not a whisper about all of this from Washington DC. No doubt at some or other point we will probably hear about how Obama had been responsible for rescuing the economy.
ocalhoun
deanhills wrote:
I wonder how many of the decision makers in Government have a vested interest in the Big Banks,

At a rough guess, 40%. Obama is apparently one of them.

How many politicians have vested interests in some industry or other (like pharmaceuticals, auto manufacturing, oil, banks, big agriculture, military manufacturing and R&D, et cetera)? 100%.

(Obama has a soft spot for banks and automakers, apparently, and we may see more connections after we see who gets the most money from the health care bill. While Bush had very close connections to the pharmaceutical industry, and likely had ties to oil as well.)

Anybody without these 'connections' will never raise enough money to win a campaign, and will find it difficult to be an accepted part of any major party.
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