Think you could make it in business with a trillion dollar subsidy? That’s a very conservative estimate of what banks can borrow each year at almost no cost, courtesy of Fed easing. Returning the favor, the banks plow the funny money into Treasury paper, stocks and bonds, then lend what crumbs remain to the riff-raff at usurious interest rates that sometimes exceed 20% — a tad more than Frankie the Camel charges customers. What a great way to make money! And yet, how do we account for this recent headline in The Wall Street Journal: Bank Profits Are Looking Stressed – Slumps in Trading Revenue, Mortgage Business Are Expected to Weaken Quarterly Earnings Reports. Can this be right? Actually it’s even worse than it sounds, since, on the trading side of their sleazy business, banks have something going for them that’s even better than subsidies – i.e., the ability to control securities markets like a Big Six wheel on the carnival midway.
No One Is Fooled
Speaking as a former floor trader, I can attest that institutional trading desks seldom execute an order unless it affords them a fool-proof opportunity to front-run their own customers, and, as part of the process, to steal a little extra from each and every other party to the transaction. High frequency trading is just one of the ways they do this, scooping up shares nanoseconds ahead of you or I in order to sell them to us for a small fraction of a penny more than they paid. Michael Lewis is out with a book called Flash Boys that explains this in detail. Caught in flagrante delicto, Wall Street’s reaction is to deny everything. In this they have been abetted by the usual morons and shills in the financial press, who have dutifully parroted Wall Street’s talking point about how high frequency trading “adds liquidity” to the markets. Yeah, sure. If any of you editorial-room imbeciles or trading-desk thieves are reading this: No one is fooled! The simple fact is, high frequency trading makes up more than half of U.S. stock-exchange volume each day. Some liquidity-helper!
Meanwhile, with all the “stress” the banks supposedly have been feeling, it’s evidently not so serious that the pay of their top executives has taken a hit. Goldman CEO Lloyd Blankfein, for one, just got a raise to $23 million, so we’re not likely to bump into him at Walmart. For most Americans, however, the Great Recession never ended. Their debt problems might be seen as the banks’ great good fortune, but only if you believe the banksters will ultimately get to collect what is owed them. Since you can’t get blood from a stone, it may be the banksters who lose in the end.
