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Banks Making Shed Loads But Fannie And Freddie May Be “Losing Money as a Matter of Policy”

The FDIC is out with its Quarterly Banking Profile for Q1 2010. And despite a rise in the FDIC’s ‘Problem List of Banks’ to 775 in Q1 from 702 at the end of 2009 and 552 in Q3 2009, banks earned a ton of money – more than $18 billion in the quarter. Big banks made out like bandits as they accounted for $15.6 billion of the profits – a staggering 87%.

(Official report embedded below.)

In a past post, I pointed to the steepness of the yield curve as a major reason for the banks’ earning so much money. See my April post "Free money: JPM paid to borrow on $271 billion worth of repos" which shows that JPMorgan was actually being paid to borrow money in Q1.

But I surmise that JPMorgan is not substantially increasing lending anytime soon because it has refused to pay but a token dividend. Given the enormous profits, JPMorgan’s refusal to pay a normal dividend should strike one as odd. Maybe Jamie Dimon knows something that you and I don’t. I suspect he’s playing it safe for any number of reasons (regulatory changes, double dip recession, etc). So despite the record profits that big banks have made, none of it is going to shareholders in the form of dividends.

There’s another reason that banks earned so much cash: the GSEs. It is clearly the unsaid policy of the Washington elite to use Fannie and Freddie as a vehicle for manipulating mortgages. They are dominating the market for new mortgages. Without them, house prices would be much lower. But, Fannie and Freddie are being left with all the garbage loans and losses that the rest of the banking sector could be taking and this represents the nationalization of America’s mortgage problem I predicted it would in September 2008. It is a backdoor bailout of the banking sector.

Others have reached the same conclusions. Barry Ritholtz and Dean Baker give you the gory details in the video below.

Remember this the next time you hear the official propaganda that all is well in American finance.

Source

Backdoor Bank Bailout? Fannie And Freddie May be “Losing Money as a Matter of Policy” – Tech Ticker

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

8 Comments

  1. Sam Costanzo says:

    So shut down Fannie & Freddie, collapse the mortgage market, create a few hundred billion of credit losses at the banks, crash home prices, put more mortgages under water and throw a few million more people out of their homes … that’s what we want. Liquidate houses, liquidate labor, liquidate farmers, liquidate stocks, liquidate the whole f****** economy.

  2. Sam Costanzo says:

    On second thought, without Fannie and Freddie who would we blame for all of our problems?