Wednesday, August 12, 2009

What Bank Profitability?

"If the government's guarantee since November on new debt issued by financial firms such as Citigroup Inc and General Electric Co. will save these companies about $24 billion in borrowing costs during the next three years, according to an analysis by the Wall Street Journal. In the second quarter alone, the eight largest issuers of corporate debt under the [FDIC's] Term Liquidity Guarantee Program cut their interest costs by about $2.2 billion, increasing their profits and delivering an extra jolt to the stock market's two-week rally. Citigroup saved nearly $600 million in the latest quarter on the $44.6 billion in medium-term FDIC-backed debt it has issued, or about 14% of its overall profit of $4.28 billion. Goldman Sachs Group Inc. [GSG], which posted record quarterly profit on $3.44 billion, is cutting financing costs by roughly $205.5 million every three months by selling corporate debt through the government-assistance program instead of on its own. ... Without federal assitance, companies that rely on short-term financing to fund operations would have been unable to roll over their debt without paying exorbitant interest rates", my emphasis, Mark Gongloff (MG) at the WSJ, 27 July 2009, link:

MG, please stop shilling for the banks. Your article is deceptive because it ignores a larger effect, Zimbabwe Ben's suppressing interest rates to the banks' benefit. GSG is still on welfare, but wants to pay bonuses. Exorbitant, by whose standards? Apparently MG believes banks should be able to borrow at less than market rates.

1 comment:

Anonymous said...

So ZimBen has "saved" the banks but has cratered the economic system.

If he is as clever as they say he will decline reappointment.

Then Pres-O can appoint Lloyd Blankfein who will use primary dealer syndicate tricks to "soft land" into the depression.

Goldman Sachs >>> no one has ever explained why GS is systemically important to America. Or the other investment banks. Maybe ZimBen, the Vice Chairman of Paper Kohn or Sheila Bair could.