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 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.
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%.
Bubble-deprived?
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.
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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.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.
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.
STRENGTH IN NUMBERS - WE WILL OVERCOME!!
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!
YOUR SILENCE IS YOUR CONSENT!
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...
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.
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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