And now, a Game of Concentration

When I saw this NYT Headline, “As Big Banks Repay Bailout Money, U.S. Sees a Profit”, it really did not send me to a

Expecting Customer service?  Fat Chance!

Expecting customer service? Fat Chance!

happy place. You’re probably going to raise a Spock-like eyebrow and ask me to explain. Why, Kat, you’re probably saying, isn’t a 15% return on our “money” a good deal in this market? Remember finance 101, rates are relative to risk so let me tell you why I’m a concern troll on this. First, here’s what the author thought was the punch line to this story.

But critics at the time warned that taxpayers might not see any profits, and that it could take years for the banks to repay the loans.

As Congress debated the bailout bill last September that would authorize the Treasury Department to spend up to $700 billion to stem the financial crisis, Representative Mac Thornberry, Republican of Texas, said: “Seven hundred billion dollars of taxpayer money should not be used as a hopeful experiment.”

So far, that experiment is more than paying off. The government has taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The five other banks that repaid the government — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — each brought in $100 million to $334 million in profit.

What the author really missed was that information also comes on the back of this information last week that shows that the government has created incredible high concentration ratios in the banking market. I discussed it here in a piece where I called it a big ol’ game of monopoly. This is an ongoing policy disaster and many folks appear to be missing it.

J.P. Morgan Chase, an amalgam of some of Wall Street’s most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

There are so many headlines buried in that NYT piece that you’d think it was written by ostriches. This is one alone should’ve grabbed a banner headline.

But the real profit came as banks were permitted to buy back the so-called warrants, whose low fixed price provided a windfall for the government as the shares of the companies soared.

Well, isn’t that nice, the best borrowers paid back first. Some one over there ever take any finance classes? I doubt it. Of course, that’s going to happen you twit!! It’s the implication of what that means that scares the pants off me. The fact they’ve borrowed funds allows us to regulate their actions. Now, the big ones are paying them back so they’re out of the reach of tighter TARP regulation! They like their old loosey goosey nonsense regulations especially now that they’re all set up as a de facto cartel with government blessing. They’re ready to price discriminate, restrict services, and create extraordinary profits all they want with FEW RESTRICTIONS. Just wait until we get to witness the new and improved, unregulated CEO pay schemes!

It’s similar to handing all of our energy needs and policy over to OPEC.

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