Commentaries
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Giving props to Wall Street’s risks
Wall Street would like you to believe that when investment banks take on risk they are largely doing it for the benefit of investors — maybe even you and me.
Bankers say much of the capital that their firms put at risk each day is to complete trades for big corporations, mutual funds, pension funds, hedge funds and university endowments. And contrary to the conventional wisdom, proprietary trading — bets made for a bank’s own behalf — is really just a small part of their business.
Lately, Wall Street’s captains of capitalism have been aggressive in pushing the “we take big risks for our customers, not for ourselves” line of argument.
That’s especially so in the wake of the public furor over the outsized trading gains at the big banks like Goldman Sachs Group, JPMorgan Chase and Barclays and even Citigroup, so soon after the collapse of Lehman Brothers.
Nerdy thought on the Fed balance sheet
Looking quickly at the Fed balance sheet, I stumbled upon the “off balance sheet” quirk of its mortgage-backed security holdings. The Fed reports this week that its holdings through Wednesday Sept. 2 stand at $625 billion. But we know from the NY Fed data released yesterday that the central bank has bought $817.6 billion MBS so far this year.
The discrepancy, which I had forgotten but a kind source reminded me of, is because the Fed is buying mortgage pass-throughs before they settle, those purchases won’t show up right away. Here is the table that shows there are $164.7 billion MBS essentially off balance sheet. So there’s still a whole lot more coming onto the Fed’s balance sheet, even if they stopped purchasing MBS tomorrow.
Barclays’ yo-yo balance sheet
Talk about deleveraging. By far the most striking number in Barclays’ first-half profits concerns its balance sheet:
Our total assets decreased by £508bn to £1,545bn over the first half of 2009.
Given the stated desire by regulators – and investors – for banks to shrink their balance sheets, a 25 per cent reduction in total assets in the space of just six months has to be applauded, right?
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The Wall
