Why the big Wall Street banks are hurting

The 1% is worried, and not because of Occupy Wall Street. A lack of easy money to inflate a new bubble has brokers and big banks -- including B of A and Goldman Sachs -- losing money and doing layoffs.

By MSN Money Partner Nov 15, 2011 1:30PM

By David Weidner for MarketWatch


The 1% is worried.


It’s not the protesters drumming in Zuccotti Park or the chants of “shame” keeping them up at night at their Manhattan homes. It’s a business model built to churn out easy money in a bubble that’s sounding an alarm.MarketWatch


Wall Street is struggling with market forces that keep dragging its bubble machine back to the ground.


Oh, the banks have tried. On the retail front, Bank of America (BAC) said it would slap a $5 monthly fee on its debit card users. On the institutional front, MF Global ramped up leverage to buy risky European sovereign debt.


But B. of A. was beaten back by a consumer revolt and an industry rebellion. And MF Global chief executive Jon Corzine found out the hard way that leverage is still every bit as risky as it was in 2008.


Without easy money, Wall Street’s apparatus for mining easy cash have gone quiet. Goldman Sachs Group (GS) lost money trading 21 days during the most recent quarter, the most since 2008. The firm even owned up to $100 million in losses on a single day.


Much of this is due to the evaporation of the huge spreads in fixed income that traders generally take advantage of. Treasurys and corporate and municipal bond spreads have narrowed to a sliver. This has hurt the so-called shadow bankers as well. Witness the 5.5% decline for the Hedge Fund Research Index in the third quarter.


Not even gold (GLD) has been gold since September, it’s off 5%.



The industry-wide wipeout is a far cry from the boom-to-bust two decades we’ve just completed. We went from real estate boom to bust in the 1990s, technology boom to bust at the turn of the millennium, back to a real estate boom to bust in the last eight years.

Without an asset to inflate, Wall Street is bracing for a prolonged grind. The industry has shed more than 30,000 jobs. Bonuses are expected to decline 20% to 30% for those who still hold their jobs. Investors have seen bank stocks fall 27% since February, as measured by the KBW Philadelphia Bank Index, and brokerages tumble more than 30%, according to the Amex Securities Broker/Dealer Index.


Then, of course, there are the European banking ties to Wall Street. Banks including J.P. Morgan Chase & Co. (JPM) and Morgan Stanley (MS) have bent over backwards to show their holdings are relatively small.


But as many investors have figured out, direct holdings are one thing, indirect exposure through credit-default swaps and counterparty agreements are an equal, if not greater, threat. The market impact even if a bank or brokerage doesn’t have any ties remains dangerous.


Europe, in many ways, is the next -- and perhaps not the last -- bubble to pop. China’s exposure to its own growth and the hole it is digging itself into by buying U.S. debt and keeping its currency pegged to the dollar represents another.


If Wall Street could only find another bubble to inflate, those risks would mitigate. But the pump is broken.


Ultimately, Wall Street could survive if bankers and investors could accept moderate growth. If the Obama administration and Ben Bernanke at the Federal Reserve took an aggressive and clear stance on the housing market and interest rates, banks could map their future.


For now, it’s still bubble economics. And the only thing for certain is that the air is coming out, not going in.


Related at MarketWatch.com:


Nov 15, 2011 2:33PM
Hot It's not just the EU that's the bubble but it's the Debt Bubble that's going to bust. People are sick and tired of being trapped by banks, governments, mortgage companies and politicians into paying for bailing out other people. They're sick and tired of having their money invested in Medicare and Social Security insurance programs called entitlements when they are actually paid for benefits. They're sick and tired of receiving advice from analysts, banks, investment advisors, politicians, realtors and the like and having that advice turn out to be bogus.  People don't want to live bubble mania anymore and they're going to use their money and votes to stop it.
Nov 15, 2011 6:34PM
So wall-streeters can't find a scheme that works anymore? On a normal day, I'd wish no ill will on anyone, but now I've changed my thinking. I want every scumbag on wallstreet who has ever manipulated a stock, let false statements slip out, given false statements about a companies standings and holdings, or who has outright ****ed other human beings, to suffer, lose everything and end up in the street.
I lost almost everything directly because of the lying scum who work on wallstreet. (not everyone, but the ones who stained the images of the hardworking decent few)  
May you filthy roaches be out in the street, unable to pay your bills, and staring into an empty fridge like I do now, wondering how you're gonna put food on the table for your kid!
What a sorry bunch of low lives you are.
Nov 15, 2011 3:28PM
I received a notice from Wells Fargo that they would extend me a line of credit with no charge. However, if I did not use at least 33% of that line within the year, they would charge me $150.00. In other words, they were going to charge me for NOT doing business with them. As a home builder, I wish I could do a deal like that. And they are complaining?
Nov 15, 2011 3:23PM
Maybe if they were more customer friendly, they would not have the trouble they claim to have. The big banks I know of are the most arrogant business people I know. We help stabilize them in a situation they created and they continue to try and screw us. Let 'em eat cake.
Nov 15, 2011 6:54PM

Goldman wasnt able to invest in any bubbles so they are buying millions of barrels of oil and storing them on tanker ships in the North Sea. If you are wondering why oil is almost back to $100 just read this article and realize that the people in charge will shaft anyone to make easy money.


Cramer was talking about it last week. The manipulation is so bad that the market is acting contrary.


I agree with the poster that wishes all of the politicians, bankers, home builders, mortgage lenders, and all of the rest of the 1%, get tried for treason.


Financial terrorism.

Nov 15, 2011 4:35PM

I believe that banking institutions are more dangerous to our liberties than standing armies.

 If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. 

The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

    Thomas Jefferson
Nov 15, 2011 6:41PM
I believe that the Wall Street management crowd and the legislative DC crowd are in buddies from way back and are involved in the economic slide together.  Who came up with the idea of giving financial companies the $700 billion for a bailout?  Who is on the Boards of Directors of various corporations, voting themselves $million salaries.  Why have none of the perpetrators of the massive fraud that wrecked Wall Street and bankrupted main street's lifetime investment programs gone to jail?  It appears that nobody is accountable; nothing is anybody's fault; and too many people in charge are crooks.  It isn't the "bubble" that is broken, it is the concept of main street America investing in a rich person's market run by thieves that is clearly wrong.  The greatest threat to national security is not terrorism, it's the crooks who are running this country and those who manage industry here, them and their $million golden parachutes they receive when they are fired for doing a crummy job. They should all be tried for treason.  They are traitors to freedom.
Nov 15, 2011 4:27PM
So the crooks are having trouble being crooked, most of their schemes have been exposed and people aren't pouring money into the banks and even going so far as to move their accounts to local banks and credit unions.   I think we all know they did this to themselves and I for one do not feel sorry for them.  Maybe they should change their ways and try an honest approach to banking with straight forward fees and guarantees of not changing or charging more in fees for using our money.   What they call assets and liquid funds are our life savings and our retirements.   I don't fully trust my bank any longer and I've been with them for close to 20 years and I don't appreciate what they are doing.   My little bit won't bother them that much to lose, but a few million of us putting our little bits somewhere else will send them a message about honesty and integrity...
Nov 15, 2011 6:52PM
The author, David Weidner, is a complete MORON.  Give credit where credit is due.  The 99% OWS protesters are not responsible for the fear or problems with big banks???

Who do you think is educating the rest of the country on how to fight back against these crooks?  WE THE PEOPLE OF THE 99%!!!!!  We are the ones who started the trend of closing bank accounts with B of A, Chase, Wells Fargo.  We are the ones informing people to join local union banks.

"But B. of A. was beaten back by a consumer revolt and an industry rebellion."  YUP, THAT WAS US!  We fought back and will continue to do so till these Schumcks are ALL GONE, along with their BS policies. 

Nov 15, 2011 3:42PM
just shows the recession never ended ,the great depression continues
Nov 15, 2011 3:38PM
The reason that big banks are failing is simple: Americans have finally figured out that there's no such thing as "good debt". People have finally realized that, in the long run, debt will always cost money and increase risk to whoever has it. Even assest that have the potential to increase in value, such as a business or real estate, carries significant risk if you borrow money to purchase it, since any such asset will have to increase in value at a faster rate than interest rate of the loan in order to be a profitable investment. Without interest from debt, banks will lose a huge source of its revenue. and that's precisely what is happening.
Nov 15, 2011 6:17PM
I fully feel that Wall Streeters have our politicians in their hip pockets
Nov 15, 2011 6:12PM

The 1% should be very worried,  Americans from all walks of life has declared we are not taking it any more!  We have seen the people we elected to represent us purchased and controlled by the corporations that you see every day on the board flashing the up or down quotes of their wealth.  We have experienced the loss of our homes, signed away by people hired for $10.00 per hour, to sign the signature of the banks employee to the foreclosure notice. No negotiation with the owners to lower the payments or interest,then sell the home for thousands less. Why? they get to write it off as a loss of income. Our elected remains silent and do nothing.

We have experienced the loss of our retirement money because the very same banks have played with derivatives and lost out money not theirs. The elected remains silent and do nothing.


The Corporations have packed up and moved overseas for a $2.00 a day labor force, Then send the goods (much of which is defected) back to the U.S. and expect us to purchase it with our now minimum labor wages from two or three jobs we are working. 


Our children and other relatives are fighting some dying, some losing their sight, arms, legs, in Iraq, Afghanistan while here in our congress the people we elected are taking "donations", stock options. their wife or husband hired as a consultant (on Paper) from the lobbyist  of the war machine for a yes, to the contracts awarded. Our elected remains silent!


Our schools are forced to lay off teachers while the school boards members give themselves  outrageous salaries and benefits, purchased highly overpriced school books and material from a company owned by member of their board. The college's are passing out catalogs and encouraged the students to purchase that has only goods made in Malaysia. Why? The college get's a kickback. Let's not forget the salaries of the college boards, What have they done or doing to justify the Million dollar salary's and benefits they receive? Why has the tuition for students reached an all time high while teachers salaries being slashed? Why are the Banks charging such high interest on student loans?  Our elected remains silent!


Why are there protesters on the streets of America? The answer is simple; We Americans citizens have been sold out by the people we elected from the mayor to senate and the house. They do not hear us when we speak, the do not answer us when we phone, fax, email. They has passed rules that have placed them above the law of the land. Laws that you and I must live with. They have voted themselves salaries, Health, retirement, travel, office, housing,benefits,Paid for by American taxpayers, while taking orders and receiving gratuities from corporations They allow the campaign ads to do their talking for them. Ads that infuriate the American citizens that have done their research and know they no longer can be called representives of the people that elected them. They should now be called by their proper title,Salaried  Representives  of the international corporate board. Time to clean out the ALL those offices inhabited by the corporations robots that are destroying your freedom, your jobs, your home, your children, .


Let's not forget MAY 1970, Nixon ordered the invasions of Cambodia after promising to end the Viet Nam war. Ohio,  Kent State U. Student protesters,   6 dead.  many wounded.

Let's not allow history to repeat itself!


Nov 15, 2011 4:15PM
Companies, corporations, and banks have done this to themselves. There is no retirement anymore, the goverment and big business want you to invest in wallstreet instead of a company owned retirement fund. Now wall street and the banks are scrambling to find a way to make money. Not only does wall strret have to answer to the rich, but they also have to answer to the rest of us now. They have done this to themselves, and to to rest of us, trying to make their easy money with fees, and on the backs of working people. It's time they do a little work themselves.Banks killed of the family farms back in the 80's (remember Farm Aid) now they took all those houses from hard working people and they are still trying to charge us for nothing. I remember when they used to beg you to get an ATM card, cause it would save the bank money from having to hire more employees. Now they want to charge you fees to do the work that costs them nothing because a computer is doing it instead of an employee, who needs pay and medical expenses. How easily the American public forgets,and spends our money. I tried to pay cash for my Verizon bill the other day and they can't take cash. So all big business and banks are in this together, screwing the american public out of our hard earned pay.  Thanks to our government, who are suppose to keep an eye on them, yet let them deregulate the banking industry so they can get away with whatever they want. And they wonder why we are in the financial crisis we are in.
Nov 15, 2011 4:26PM

What kind of idiots  can't make money when the Fed gives it to them cash for nothing to loan to us at outrageous rates of interest.  I have read the highest rate of interest on credit cards is 72%. Some of the cards I had (but destroyed) were at 30%.


If the Wall Street boys are suffering, it couldn't happen to a nicer and more incompetent group of people.  I have more respect for burglers because they at least are honest about their profession.  These guys have been stealing for years but "legally".


Boo f-'in hoo! Now they might have to sweat and make money by actually "working" if you can call it that at all...

On a related note, I've heard of this guy who went to his nearest financial center to decry the actions of the "money changers"

His name was Jesus...

I'm not religious by any means, just amused that 2000 years ago Christ knew where the real evil in the world lay...

Nov 15, 2011 3:36PM
Awwwww, the poor Big Banks & Wall Street. Their practices only caused the problem we've been in since 2008!
Nov 15, 2011 5:54PM
Did you happen to see 60 Minutes this past Sunday? Go to their website.  They exposed that our politicians can make legal trades on information learned behind closed doors during law and policy making.  (Insider Trading)  Martha Stewart went to jail for insider trading, but our politicians have written the law so they are exempt from the insider trading law.  Some of the politicians have made multimillions trading after coming out of closed door sessions on health care and finance and a multitude of other things.  So, no doubt, they will find a way to fix this to their benefit.  No worries.
Nov 15, 2011 4:24PM

These banks are not hurting for money. They are still showing profits. It's American big business and government and coporate greed it always was. These banks are making money just not the type of easy money they were making before. They casued this whole market to cash, with there spend, spend , spend, attitude. Sooner or later you have to pay for the things you buy.Now there is no easy money for them becasue people are actually paying there bills instead of borrowing. Oh to bad you poor banks, maybe you should get a second job like the rest of us working folks, to pay your bills.



Nov 15, 2011 8:33PM
Wall Street is the victim of its own rampant, vicious, short-term greed. It's as simple as that. Wall Street created the forces that prevent it from rebounding.

Americans with common sense and the least bit of intelligence have finally discovered that Wall Street is now the playground of the wealthy and corporate interests and offers little to nothing for the average investor. Wall Street and the banking industry have lost the trust of the citizens of this country.

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