Monday, December 13, 2010

Bailout to Banks Produce Big Profits But at a Cost

In the article, financial firms and banks made a record profit for 2010. Also, new regulations will make it difficult for the financial system to continue bouncing back from the worst financial crisis since the Great Depression. Not mentioned here is the repercussion in bailing out the financial system. Even though financial firms and banks made a handsome profit, they still owe the government billions in dollars from the bailout. Unless you are a shareholder to one of these financial firms or banks, majority of Americans are not benefiting for it. Actually, the bailout is causing the national debt to balloon and devaluation of the dollar. The combination is bringing the country close to bankruptcy. The outcome will cause countries to stop financing our debt. In addition, our government will continue to print money from thin-air causing inflation to sky-rocket. Currently, we are seeing the ugly reality unfolding in front of us. Therefore, on the surface, the government saved the banking system, but at a price to the American people.

(Bloomberg) Wall Street’s biggest banks, rebounding after a government bailout, are set to complete their best two years in investment banking and trading, buoyed by 2010 results likely to be the second-highest ever.

The surge has come after the five banks took a combined $135 billion from the Treasury Department’s Troubled Asset Relief Program and borrowed billions more from the Federal Reserve’s emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Brothers Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed’s purchases of fixed-income securities.

“This is a once-in-a-lifetime opportunity for most of these banks, and I think they’ve recognized it as that,” said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, who has written about Wall Street’s history. “The profits they’re making now will allow them to replenish their capital and take care of the other things they need to do.”