I seriously do not understand Wall Street:
Investors are back to worrying about banks.
Long-present unease about soured loans bubbled over on Monday after Bank of America (BAC) said it set aside $13.4 billion to cover lending losses, even as it posted a profit for the first quarter, and as anxiety grew about the results of the government’s “stress tests” to determine if banks will need more government bailout money.
While Bank of America and other big banks like Citigroup (C) have fared better so far this year than many believed they would, nervousness is growing now over the massive losses from defaulting loans that are yet to come. On Sunday, White House chief of staff Rahm Emanuel said some banks will need help.
Financial stocks suffered some of the day’s worst declines: Bank of America plunged 24.3% and Citigroup fell 19%.
When I saw the Bank of America report this morning, my first (and admittedly uninformed) thought was “here comes the pump and dump.” Maybe I’ve grown overly cynical, but it just looks to me like this is just another little feeding frenzy before the next dive.
But what I really don’t understand about the crackheads on Wall Street is how any of them could honestly think things would be back to the way they were in just a short amount of time. From what I understand, things are never going to be back the “way things were.” That era just seems to be over, and with the imminent CRE crash and tons of loans about to go bad, I can’t honestly figure out why anyone would think this was over.
And by the way, I just love all the banks who took hundreds of billions in TARP money, didn’t start lending again, and now want to repay the money back (but just never seem to get around to it). Is there anyone, and I mean anyone, who thinks that is motivated by anything other than executive compensation?
TenguPhule
Nothing exists beyond this quarter’s returns and bonuses, that’s why. Everything else is someone else’s problem.
gopher2b
Even before today’s crash (24% is a crash) Bank of America was trading at 1/4 its price at peak. Three weeks ago, it was trading at 1/20. Even with these run-ups, we a very, very far from the glory days.
Today’s events are just over-reaction to BAC’s warning that there are more credit problems ahead of us. No sh$t.
b-psycho
All this crap just goes further to prove that “corporate personhood” itself should go extinct. Executives will cannibalize the corporation in a heartbeat to serve themselves.
arguingwithsignposts
Two words: Credit Cards. The CRE explosion isn’t going to be anything like the Credit Card implosion these folks are bringing on themselves by squeezing their clients/customers with enormous interest rates. BKs are going to skyrocket. I don’t foresee a pretty end to this.
gopher2b
@arguingwithsignposts:
But at the end of the day the banks are going to make a ton of money this year. They are borrowing money for free (from the gov’t & and their depositors) and lending it out at 5-8% for homes and 10-20% on credit cards.
Any bank that survives with triple in 2-3 years.
smiley
Of course not. They just don’t give a shit. However, it appears that the federal government just might start paying attention. Or not. They’re entitled after all…
Dennis-SGMM
@arguingwithsignposts:
Yeah, and only a cynic would believe that The Bankruptcy Reform Act of 2001 was written with a scenario like the present one in mind. Credit card users are being put in the position of being seasick and having lockjaw at the same time.
TenguPhule
and lending it out at 5-8% for homes and 10-20% on credit cards.
Except they’re not the ones holding the loans and cc debt.
They sell it and issue more.
Also, default rates are going to make them cry over the next few years.
Ninerdave
@arguingwithsignposts:
I believe there is some sort of Credit Card reform that’s due next year, which has lead the banks raking in money while they still can.
gopher2b
Its tough for me to determine who I have less sympathy for: banks that overextended or CC users who overextended. A lot of homeowners have been caught up in a death spiral and saw their equity evaporate because of circumstances out of their control. CC users (or most of them) just wanted that plasma.
passerby
This was also my first reaction.
And like so many other people, when I hear that one of these banks “posted a profit” I have to wonder if that profit was “actual” or “virtual”.
What does it all mean?
Calouste
@smiley:
1. Go to Columbia University
2. Get a job at a bank
3. ????
4. Profit!
JL
@arguingwithsignposts: I have never understood the bleed the poor and middle class mentality.
If a person struggles to pay off their credit card debt when the interest rate is 10%, how does raising the rate to 20% help? It’s the same with health care. Recently I had blood work that would have cost me $222.00 if I didn’t have insurance. Since I had insurance the negotiated rate was $40.00.
The banks can cry all they want about their pay being cut.
Xecklothxayyquou Gilchrist
I can’t honestly figure out why anyone would think this was over.
You’re too modest. It’s because they’re not very bright and feel entitled to the tons of money they “earn” because they went to expensive schools to skip class and snort coke and chase skirt.
bago
Perverse incentivization at work. When the bonus for a quarterly profit is 3 million and the bonus for long term stabilization of the company is zero, guess what’s going to happen.
Xecklothxayyquou Gilchrist
@bago: When the bonus for a quarterly profit is 3 million and the bonus for long term stabilization of the company is zero, guess what’s going to happen.
I suppose it does work that way. There’s also the “bonus for leaving the company after doing well = $100M, bonus for leaving the company because you drove it into a ditch = $100M” principle.
jcricket
This is the right attitude. Monitor and mock as necessary. Republicans, banks, Libertarians, tea-baggers – they can say whatever they want. And then we (Democrats, Obama, Gibbs, Emmanuel, the DNC, your local congress person) can pounce all over them making their transparent WATB behavior obvious.
The vast majority (60-75%) of the American public is already on board with our agenda, and not a fan of these other idiots – they (the majority) just need some helpful reminders now and then to make it clear the other people are still asshats.
Olliander
With regards to the recent run-up in stocks, nothing has changed at all. From the short-term bottom reached the first week in March, it took about 2 weeks for CNBC cheerleaders to talk about “turning the corner”. The Katie Courics and Charlie Gibsons and their “dinner table” news shows soon followed, and all was well with the world again. But even before the news reached the average joe, the smart money had bailed. And of course, the poor sap with his Etrade account who thought he could score by nabbing some Citigroup at $4 last week is clutching his proverbial pearls, just hoping for the double. Hope in investing is never a good strategy.
Especially when it comes to the machinations of Wall Street, the American public is short-sighted and like with most every else, is usually wrong.
b-psycho
@jcricket: I’d hardly lump all libertarians into that mix of idiots. There’s some that aren’t Randroids out there.
Nowhere near enough, but some.
angulimala
@bago:
Understatement.
When the profit for quarterly profit is $3 million and the bonus for long term, say 10-year, stabilization of the company is $30 million, guess what is STILL going to happen.
Mary
One of the kings of Chicago School free market theory and the most influential judge on legal economic theory, Judge Richard Posner, is coming out with a book “The Failure of Capitalism.” It reexamines deregulation, unregulated executive compensation, permitting cramdowns in personal bankruptcies… Change is coming for the greed heads.
liberal
As pointed out by a story in the Washington Post, they’re not returning the loans and loan guarantees that they got from (I think it was the Fed and the FDIC) that come with no strings attached. That pile of money is also much larger.
liberal
@b-psycho:
Any libertarian who thinks that landowners should be able to keep the rent of land is evil crypto-feudalist filth.
See e.g. “Are you a Real Libertarian, or a ROYAL Libertarian?”
b-psycho
@liberal: I wasn’t talking about land, but I agree.
b-psycho
Double post, ignore.