Banks are the big winners from quantitative easing [UPDATED]

Posted on November 9, 2009 by stacyherbert| 18 Comments

Stacy Summary: Um . . . no duh. And once you introduce these sort of welfare programs, it is very, very difficult to get rid of them.

[UPDATE]: How Goldman profits from low interest rates

Banks Game Quantitative Easing

Guess who the real winners are? Surprise, surprise, it’s the banks, whether they are acting as intermediaries between the different arms of government in the execution of QE or trading into the anticipated government intervention, the banks are raking it in – it wasn’t rocket science for the banks to work out that if the government was buying gilts, yields would fall, and yield-hungry investors would pile into high-yield bonds and equities – and to position themselves accordingly. This is one of the main reasons that recent investment banking results have been so strong, so it is a bit rich when these results are then presented as proof that the business is solid.

Defenders of QE will argue that it was supposed to bolster banks – but only in order to help them replenish capital and lend again, surely, not to boost their trading profits.

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18 Responses to Banks are the big winners from quantitative easing [UPDATED]

Max Power | November 11, 2009 at 12:05 am |

For the Gold and Silver bugs:

Gold – How its made
http://www.youtube.com/watch?v=MyOKNR1JCs0
Dante | November 9, 2009 at 6:50 pm |

I hear Blankfein does “gods” work?…maybe he can bring back a few of these poor souls?

Suicides in the downturn raise worries about recession’s real cost

http://tinyurl.com/yznbtv3
Matt Smyth | November 9, 2009 at 5:53 pm |

Maybe everyone has seen this but this guy tries to sell a one oz coin for $50

http://www.youtube.com/SchiffReport
Dante | November 9, 2009 at 2:52 pm |

As Foreclosure Nightmares Increase, Will More Homeowners Pay Off Their Bankers in Violence?

NeighborWorks’ faith in “the legal authorities” has not been borne out by the facts of this unfolding economic depression, and Americans can see right through the hypocrisy of it all: From the housing bubble to the neutered bankruptcy bill and down to the highway robbery of the bailout, the collusion of the government and the financial-services industry has stripped the population of everything from its equity and savings to its dignity and options. And it’s mad as hell about it, as it should be, given that what it is enduring is a perversion and ultimately erasure of authority.

http://tinyurl.com/ydb324z
Dante | November 9, 2009 at 1:08 pm |

correction
should be:
While totally off topic, I would be surprised if the financial heads didn’t have a similar conversation:
Dante | November 9, 2009 at 1:06 pm |

While totally off topic, I would be surprised the financial heads had a similar conversation:

“Don’t we have an obligation to tell physicians about this?” Franklin says he asked his manager, Phil Magistro. His boss tried to reassure him, Franklin says.

‘Total Disregard’

“‘Don’t worry about this stuff,’” he says Magistro told him. “‘It can never get back to us.’”

‘Buying Access’
Pfizer’s marketing program offered doctors up to $1,000 a day to allow a Pfizer salesperson to spend time with the physician and his patients, according to a whistle-blower lawsuit filed by John Kopchinski, who worked as a salesman at Pfizer from 1992 to 2003.
“By ‘pairing up’ with a physician, the sales representative was able to promote over a period of many hours, without the usual problems of gaining access to prescribing physicians,” Kopchinski says. “In essence, this amounted to Pfizer buying access to physicians.”

http://tinyurl.com/ydgwnhe
FreeMarkets? | November 9, 2009 at 12:56 pm |

Geithner talks absolute popi-cock! The tax payer is bailing out a bunch of cheating thieving herberts! As I wrote yesterday the oblivious general public expected to foot the bill for this outrage and blatant lie that the BoE has cleverly and smoothly sold in as a legitimate cause to save us all! The realitiy is the that a few good freinds of the gang benefit and thats it! Excuse typos had a few derinks!
Warren | November 9, 2009 at 12:39 pm |

Professor Fekete on how the Fed causes deflation
Gordo | November 9, 2009 at 11:35 am |

@Youri Carma

Thanks for the Hudson Video, he is the best as always. Tied with Bill Black.
Dante | November 9, 2009 at 11:02 am |

What’s pretty amazing is that you have die hard capitalist’s with real experience criticizing the banker’s gaming/plundering and yet the policy makers only pay attention to the defenders of this strategy, which are either direct beneficiaries or academics…

Three Decades of Subsidized Risk

Mr. Forstmann’s point shouldn’t be taken lightly. Not by the press, nor by policy makers in Washington. But so far it has been, and the easy money is flowing like never before. Interest rates are close to zero; in effect the Federal Reserve is subsidizing the risk-taking and bond trading that has allowed Goldman Sachs to produce billions in profits and that infamous $16 billion bonus pool (analysts say it could grow to as high as $20 billion). The Treasury has lent banks money, guaranteed Wall Street’s debt and declared every firm to be a commercial bank, from Citigroup with close to $1 trillion in U.S. deposits, to Morgan Stanley with close to zero. They are all “too big to fail” and so free to trade as they please—on the taxpayer dime.

http://tinyurl.com/yeq2dgc
Dante | November 9, 2009 at 10:38 am |

Followup On “Extortion By Banks”

Let’s recount what we know to be facts:

* Lending has not increased since “QE” began, despite the alleged purpose for “QE” being to increase lending. In fact total bank credit is decreasing at a rate never before seen in the history of modern data collection. This is being reflected in consumer credit, business credit, all forms of credit – except for Federal Government debt.

* The Primary Dealers are asserting that they require Tier Capital Relief to be able to participate in the reverse repo operation.

* Yet in theory at least, the “new reserves” that were created, since they financed Treasury issue, which the primary dealers intermediate, should be sitting on their “credit balance” with The Fed. That is, either The Primary Dealers are lying (they require nothing) or they don’t have the reserves any more.

http://tinyurl.com/ykdoggq
Hawkeye | November 9, 2009 at 10:36 am |

How can there be far more money sloshing around the economy (thanks to QE), and yet be no overt signs of price inflation?

Surely because the money has not actually reached the pockets of ordinary citizens, but merely helped to prop up asset speculation and disguise the fact that corporate profit rates are tanking.

So much for the trickle down theory, then.

State sponsored wealth disparity creation on a major scale.
Youri Carma | November 9, 2009 at 10:28 am |

What Happens If Fed Blows the Exit Strategy? http://tinyurl.com/yzwz3ee

Decline of the Empire — Now What? http://tinyurl.com/yl897v7
Youri Carma | November 9, 2009 at 10:22 am |

Wall Street Record Bonuses Return as Big 3 May Pay $30 Billion http://tinyurl.com/yewyhlu

Goldman Sachs helping you to meet your maker earlier than expected, they work with their God/Lucifer now http://tinyurl.com/yjnuzru
Youri Carma | November 9, 2009 at 10:19 am |

More quantitative easing is on the way http://tinyurl.com/yhjx5k6

Michael Hudson: Forever Blowing Bubbles Vid http://tinyurl.com/yjrv53u

Renowned economist warns of ‘mother of all bubbles’ http://tinyurl.com/yab374g
Will | November 9, 2009 at 9:35 am |

@Stacy – I’ve posted another comment twice which doesn’t show up – am I on the annoying-poster-who-needs-moderation list? I apologize if my posts have been offensive (except for the limericks, which I won’t write anymore if you find them offensive…I thought we were invited to post them on the jibber-jabber thread.) Cheers!
stacyherbert | November 9, 2009 at 9:20 am |

@Will – yep, wouldn’t hold my breath
Will | November 9, 2009 at 9:19 am |

Yeah, right!

G20: Banks May Pay for Bailouts

Nov. 9 (Bloomberg) — Group of 20 governments signaled banks will be forced to cover a greater cost of future bailouts even as they split over whether that should be achieved by taxing financial trading.

After spending more than $500 billion in taxpayer’s money to save banks from Royal Bank of Scotland Group Plc to Citigroup Inc., officials meeting in St. Andrews, Scotland this weekend debated how the financial industry can be forced to pay for future rescues. The specifics sparked division, with U.K. Prime Minister Gordon Brown’s call to consider a so-called Tobin tax immediately opposed by U.S. Treasury Secretary Timothy Geithner. “It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” Brown told finance ministers and central bankers at their Nov. 7 talks. Geithner said “we want to make sure that we don’t put the taxpayer in a position of having to absorb the costs of a crisis in future.”
…
Banks are also still vulnerable, the Financial Stability Board told the G-20, saying that some are too optimistic about the state of their finances.