American Proscenium

The Gamblers’ Club

On July 15 Goldman Sachs reported that its second-quarter profits were the highest in 140 years.  It netted $3.4 billion on $13.4 billion in revenue (78 percent of which came from trading and principal investments and 11 percent from investment banking).  Exactly which trades brought in such large profits is said to be proprietary.  It retained $6.6 billion as compensation—a very high ratio of pay to revenue (48 percent).  Average compensation at Goldman Sachs will be $700,000 per employee, up from $661,000 in pre-crisis 2007.

JPMorgan Chase also reported record profits.

Both banks were aided by TARP loans and by FDIC guarantees; the FDIC guaranteed $28 billion of Goldman Sachs bonds (Financial Times, April 16) and $40.4 billion of JPMorgan Chase (Wall Street Journal, July 14).  The FDIC guarantees allowed Goldman Sachs and JPMorgan Chase to issue their debt at very low interest rates.  The New York Times (July 19) asked an interesting question: “If these companies can return to the festivities so quickly, were they really having the near-death experience they and the government claimed?”  To which we might add: If taxpayers shared the downside, why shouldn’t they be sharing the upside?

How are the banks making so much money?  The comptroller of the currency reports that, for the first quarter of 2009, JPMorgan Chase held $81 trillion in derivatives...

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