Comments on: Chart of the day: US financial profits

By: Pmanzo

Pmanzo — Mon, 13 Jun 2011 23:11:46 +0000

This is a very powerful chart. I am wondering what it would look like if you showed these figures from 1980 or some period going back 25-30 years, so we could see how much has changed over that longer period, since it seems to me that by 2001, the concentration of power in high finance was already at a high point. Can you point us to some resource on this question?

Thanks,

Pete

By: Juan1

Juan1 — Mon, 13 Jun 2011 21:05:04 +0000

That’s why the call it the financial “industry” and its employees financial “engineers”.
And they all manufacture financial “products”.

By: jeremycjohnson

jeremycjohnson — Sat, 02 Apr 2011 00:12:14 +0000

JohnBarrdear wrote one of the top 5 comments ever found on the internet.

Financial profits are simply a reflection of the amount of debt capital employed in the economy. There is more real capital (buildings, bridges, schools, manufacturing facilities) than ever before. To the extent these are financed through debt, banks as holders and intermediaries of debt will receive larger profits. It’s the capital intensity of the economy which has changed and that is all. Returns on assets at banks are no better today than historically, to my knowledge, although my research here has been cursory.

By: JohnBarrdear

JohnBarrdear — Wed, 30 Mar 2011 23:03:00 +0000

While I’m all for a good bank bashing, it is not at all reasonable to suppose that an industry’s share of all profits should equal it’s share of all value added. This is because of different degrees of capital (and labour) intensity across different industries. If the financial sector is more capital intensive than the economy-wide average (which is a reasonable assumption), then you would expect that:

a) it’s share of profits should be larger than it’s share of value added (because the marginal product of capital is increasing in capital intensity); and

b) the wages it offers should be higher than the economy-wide average (because the marginal product of labour is also increasing in capital intensity)

even if there were no rent-seeking going on.

By: y2kurtus

y2kurtus — Wed, 30 Mar 2011 21:52:53 +0000

“If banks ‘marked to market’ the assets on their balance sheets, the ‘Big Five’ would all be insolvent.”

On 3/30/09 that statement was undeniably TRUE.
On 3/30/11 that statement is undeniably FALSE.

Look at BAC:
net tangable assets 12/31/08 =86.6 billion
net tangable assets 12/31/10 =144.5 billion

Banks have raised gobs of equity, retained all their earnings for 2 years, have lowered their cost of funds almost to zero, have had the Feds bid up the value of all the assets they hold… they are receiving almost LIMITLESS support at the moment.

I agree that there are still huge swaths of hidden losses banks intend to bleed out over time but if you marked everything to fair market tonight book value would actually go up on net due to the zero interest rate enviroment.

For all the attnetion given to TARP that “bailout” was chump change in comparison to the wealth transfer zero interest rate policy represents. Savers are being openly robbed by the goverment and the money is being given to borrowers and banks.

Note that the largest benificary of this policy is not the banking system but the goverment itself. A 200 basis point increase on 14 trillion amounts to 280 billion in increased interest payments annually.

Time to put everything on the table including taxes, entitlements, and defence.

By: crocodilechuck

crocodilechuck — Wed, 30 Mar 2011 20:32:29 +0000

“This assumes that the banks aren’t hiding losses on their books. I don’t know that they are, but neither do I have any confidence that they are being fully open”

Has FASB 157 been quietly re introduced? If banks ‘marked to market’ the assets on their balance sheets, the ‘Big Five’ would all be insolvent.

End of Story.

By: TFF

TFF — Wed, 30 Mar 2011 20:10:15 +0000

This assumes that the banks aren’t hiding losses on their books. I don’t know that they are, but neither do I have any confidence that they are being fully open.

By: Hayes

Hayes — Wed, 30 Mar 2011 18:48:36 +0000

The bank profits are not easy to change. A significant revenue stream is the total interest on all debt, which changes only slowly. The financial sector takes a major share of this revenue stream as it intermediates between borrowers and ultimate lenders by transforming maturities, packaging debt, managing portfolios, etc.

That share is now larger than ever as the Fed suppresses the interest rates paid to those ultimate lenders.

So one reason that the financial sector grew so large over the past few years is that the total debt grew so big. It will not shrink until the debt shrinks.

By: GRRR

GRRR — Wed, 30 Mar 2011 18:33:20 +0000

Well, looks like they were right after all…there was a V recovery, just not in jobs.

By: dWj

dWj — Wed, 30 Mar 2011 16:49:10 +0000

If you’re comparing profits to “value added”, the implication is that workers are underpaid compared to profits. What we need are bigger bonuses for the traders; that will get profits back in line with value added.

By: FifthDecade

FifthDecade — Wed, 30 Mar 2011 16:00:41 +0000

While the Financial Sector continues to make bigger profits from exporting productive industries to China, productive jobs will decline. This inexorably leads to the dominance of the Financial sector at the expense of all other sectors.

It is almost as if the Free Market Economy has changed from a model of efficient use of capital for the benefit of production to the efficient transfer of capital for the benefit of a smaller and smaller group of the already wealthy.

That is not healthy for any economy in the long term; sadly, politicians can only see as far as the next election so I don’t see any fix coming along until it is too late to change anything.