At last count, Occupy Wall Street had “donations” of over $300,000 in a Wall Streets bank. Based on the following article from CNNMoney.com, the big banks themselves may be contributing both to this account and to the success of this movement.
It is axiomatic that you will never be short of what your profession provides. If you are a grocer, you will have food just as a car dealer will always have a car to drive. The same applies to banks. Bankers will always have money because that is their raison d’etre. When the government regulates banks through blackmail (see Community Reinvestment Act) or more recently through bank reform legislation (see Durbin amendment) enacted in the middle of the night, the banks pass these costs along to the consumer just like any other “evil” corporation. As the costs get passed along, the banks make more profit because that is their business. Although the people blame the banks instead of the government, the banks still make money and the government gets more power.
In the case of college tuition both the government and the universities are complicit in enslaving our children, but the banks are the responsible party in the eyes of the people. However, the concept of negative attacks on the banking industry actually increasing their profits is so Machiavellian that we have to give George Soros credit where credit is due.
David DeGerolamo
Big banks: Everyone hates our debt. Yay, us!
Big banks are engaging in a kind of accounting doublespeak that would make George Orwell blush.
In the past week, JPMorgan Chase, Citigroup, Bank of America,Goldman Sachs and Morgan Stanley all reported pre-tax gains from something called debit value adjustments, or DVA.
Here’s how it works: Investors are nervous about the health of many top banks, particularly their exposure to Europe. As a result, the spreads on credit default swaps (remember them?) for these banks are widening. That’s not a good sign since credit default swaps are essentially insurance policies against insolvency.
Enter the magic of legal accounting. Banks are benefiting from being hated. If they had to buy back debt today, it would be at a discount. They then book the gain as a paper profit.
How much of an impact has this had on the banks? A significant one.
JPMorgan Chase (JPM, Fortune 500) cited a $1.9 billion pre-tax gain in the third quarter. It’s overall net profit was $4.4 billion. Citigroup (C,Fortune 500) took a slightly different tack in its report, saying that credit value adjustments, or CVA, lifted its revenue by $1.9 billion in the quarter. (DVA, CVA. Tomato, to-mah-to. Let’s call the whole thing off.)
Bank of America (BAC, Fortune 500) reported a $1.7 billion pre-tax gain thanks to DVA. And Morgan Stanley (MS, Fortune 500) said Wednesday that its revenues received a $3.4 billion boost from DVA.
But Goldman Sachs (GS, Fortune 500), the only one of the top investment banks to report a quarterly loss, interestingly did not benefit as much from DVA.
