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Holding the Economy Hostage

They are bigger and badder than ever. The heightened offensive against regulations launched by the financial industry carried forward by the new Republican Party majority in the United States Congress is one demonstration, but just in case you wish more evidence, bank profits got bigger in 2014.

The multibillion-dollar fines U.S. government agencies have assessed banks has merely dented profits, and only in some cases. Four of the six biggest banks in the U.S. — which together hold about two-thirds of all assets in the U.S. financial system — reported higher profits for 2014 than in 2013, and in the cases of the other two, it appears that an increase in fines paid was responsible for their decline in profits.

Overall, these six banks — JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — racked up a composite net income of US$75 billion on revenue of $413 billion.

The most comical comment during the banks’ announcements last week of their financial results was that of JPMorgan Chairman and Chief Executive Officer Jamie Dimon, who whined on a conference call with reporters that “Banks are under assault,” adding that “We have five or six regulators coming at us on every issue.”

Those regulators seemed to have taken it easy on JPMorgan last year. The company’s total legal costs for 2014 were $2.9 billion, compared to $11.1 billion in 2013, according to a report carried by financial news network CNBC. Nonetheless, JPMorgan’s $21 billion in profits for 2014 was considered a disappointment by Wall Street, because the fourth-quarter profit dipped slightly from the previous year’s fourth quarter. Thus, the company wasted no time in announcing that “Senior executives at JPMorgan Chase & Company are pressuring managers across the bank to cut costs,” according to Reuters.

Wall Street traders have already punished the company by sending its stock down in three of the first four trading days following its “disappointing” results. Not even Wall Street banks are immune from their own role as enforcers. Some low-level employees are about to pay for that with their jobs.

Never mind that the U.S. Treasury Department handed out $700 billion to Wall Street (among other measures), bailing out the very banks whose bottomless greed and reckless gambling brought on a global economic downturn now in its seventh year. A downturn paid for not by the banks, nor their executives, but through the endless austerity imposed on working people throughout the world. Not one Wall Street executive has been prosecuted.

JPMorgan has been assessed fines for a variety of crimes, among them mortgage fraud and currency-market manipulation. A compliance lawyer for JPMorgan tried to alert authorities to systematic irregularities in mortgage securities before the crash, but was ignored. Jamie Dimon, heroically holding up against the assault on his bank, earned $20 million for 2013. One suspects he will not be homeless once his 2014 compensation is totaled.

That his company will need to come up with billions of dollars by 2019 to meet Federal Reserve capital requirements, which will slow down its ability to speculate with money it doesn’t have in reserve, might just have something to do with his whining.

It pays to be a banker

The year 2014 was a very good one for banks. Here are the full-year results for the six largest banks, as reported by themselves.

• JPMorgan Chase & Company: net income of $21 billion on revenue of $97.9 billion. This was three billions dollars more than the year before, but still not good enough in the eyes of speculators.
• Bank of America Corporation: net income of $4.8 billion on revenue of $85.1 billion. The net income is down from 2013, but that appears to be due to “litigation expenses” of $16.4 billion, more than double the 2013 litigation expenses of $6.1 billion. Almost all of those extra expenses occurred in its consumer real estate division; the bank agreed in August to pay nearly $17 billion to settle charges that it sold toxic mortgages.
• Citigroup Incorporated: net income of $11.5 billion on revenue of $77.2 billion. Citigroup’s profits were lower than the year before, but the culprit is familiar — it reported legal costs of $4.8 billion in 2014, more than ten times the $430 million of 2013. Citigroup agreed in November to pay $1 billion for rigging foreign-exchange markets and agreed in July to pay $7 billion for selling bad mortgages.
• Wells Fargo & Company: net income of $23.1 billion on revenue of $84.3 billion. With profits up from 2013, Wells Fargo said it handed out $12.5 billion to shareholders through dividends and net share repurchases, five billion dollars more than a year earlier. This at the same time that many of its branch tellers can’t move out of their parents’ house because of low pay.
• The Goldman Sachs Group Inc.: net income of $8.5 billion on revenue of $34.5 billion. Those were higher than a year earlier. The average pay for Goldman Sachs employees for 2014 was $373,265, but as that includes secretaries and clerks, those involved in speculation make far more.
• Morgan Stanley: net income from continuing operations of $6.2 billion on revenue of $33.6 billion. This profit is more than double what the company made the year before, but nonetheless is not good enough. The company moved quickly to appease speculators, announcing it would cut the percentage of its revenue going to wages, pay higher dividends and buy back more stock.

What would they do if they weren’t under “assault”?

Subject to the same remorseless laws of capitalism as any other industry, banking has rapidly consolidated. The percentage of total industry assets owned by the five biggest U.S. commercial banks has increased more than four-fold since 1990. Nor is that something peculiar to U.S. banking — the five largest banks in the European Union hold 47 percent of their industry’s total assets.

The “assault on banks” must have been conducted with a wet noodle. Although by any ordinary human logic, these colossal sums of money should satiate the most asocial speculator, the remorseless logic of capitalism dictates that more is never enough, that profits have to increase steadily. Even the rate of the increase can be expected to increase.

While working at a financial news wire during the stock-market bubble years of the 1990s, I vividly recall one day when a major computer company reported a profit of more than $800 million for its latest three-month period, more than the year-earlier quarter, only for its stock price to be driven down. Curious, I discovered that “analysts” had forecast a profit even bigger, and the rate of the increase had been lower than the rate of the increase a year earlier. That was enough for speculators to lash out.

The financial industry acts as both a whip and a parasite in relation to productive capital (producers and merchants of tangible goods and services). The financial industry is a “parasite” because its ownership of stocks, bonds and other securities entitles it to skim off massive amounts of money as its share of the profits. It is also a “whip” because its institutions — stock, bond and currency-exchange markets and the firms that trade these and other securities on those markets — bid up or drive down prices, and do so strictly according to their own interests.

A management that fails to maximize profits in the short term and deliver higher stock prices in the longer term is in danger of being pushed out, not because diffuse shareholders possess that leverage individually, but because the financial industry as a whole, through the markets it controls, can sell off enough stock to make the price nosedive, leaving the company vulnerable to an unfriendly takeover by a speculator seeking to profit from the reduced value of the company. Executives who do what the “market” dictates, on the other hand, are showered with riches.

Moreover, companies with stock traded on exchanges are legally required to maximize profits for shareholders, above all other considerations. A company that fails to make a deal, or decides against selling itself to another company, is subject to being sued in courts because angry speculators will sell their stock, causing the price to decline and then complain that the company’s management failed to maximize “shareholder value.”

Governments representing the world’s four largest economies — the U.S., the E.U., China and Japan — committed US$16.3 trillion in 2008 and 2009 alone on bailouts of the financiers who brought down the global economy and, to a far smaller extent, for economic stimulus. These are the governments that are “assaulting” banks. Such is the looking-glass logic of capitalism.

Pete Dolack writes the Systemic Disorder blog. He has been an activist with several groups.

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Pete Dolack writes the Systemic Disorder blog and has been an activist with several groups. His book, It’s Not Over: Learning From the Socialist Experiment, is available from Zero Books.

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