Every quack that writes a blog (and I am no exception) aspires to have a unique and evenhanded approach to the subject matter. Typically, we say that there are two sides to every story. In this instance, I hope to convince that there are conflicting but true stories when it comes to banks, bailouts, and profitability.
My first Street Sense post hopefully conveyed the point of view that understanding the banking inconsistencies was as easy as predicting a horse race. Whether you were wearing patent leather shoes at the track, or a J. Press suit on the trading floor, it did not matter. The race was fixed.
So now what? Here it is: the big story of 2010 will be the crisis in banking. Getting a loan will be difficult. Not because of you; because of them. Banks make money by lending you money. As my second posting recognized.....they make money by paying savers nothing, and charging borrowers lots.
Simple equation, right? Those HUGE reported profits are the proof. Not exactly.
The banks are still losing their (our) shirts. Oh sure, a couple of them seem to be making obscene profits. They are using government money to apparently make serious dough. How? Not by lending money, and not because they are investing money in businesses or the consumer to be sure. They are gambling with your money. High risk bets. If only they were high risk bets. When the government has deemed you too big to fail, betting the farm is a rather safe proposition. If you lose, you win. If you win, you win.
But these seemingly prosperous banks are essentially bankrupt. These banks, and 500+ of the others NOT backstopped by our government, (which should be renamed the Kingdom of Government Sachs), are finished. More on that next time.
