Banks have earned more profit in Barack Obama’s first 2.5 years than they earned in all of Bush’s 8 years, reports Washington Post business writer Zack Goldfarb. Goldfarb’s article, and the data on which it rests, highlights two important truths:
- Banks are doing very well in the wake of the crisis which they helped cause.
- Barack Obama has not been a scourge of the banks.
That said, there are a number of odd things about Goldfarb’s article. For one thing, his most eye-popping claim lacks context:
As far as I can tell, Goldfarb never mentions the reason for this: investment banks lost $24.8 billion in 2008, amidst the financial collapse. Krugmanite blogger Joe Weisenthal at the Business Insider thinks the huge drop in 2008 and the huge Wall Street rally in 2009 shouldn’t count. Taking Weisenthal’s objections to heart actually strengthens the thrust of Goldfarb’s thesis though: not counting the crash and rebound of 2008 and 2009, average annual Wall Street profits under Bush were $14.6 billion, while under Obama, they’ve been $22.0 billion.
So, as far as Goldfarb’s data can tell, it looks like banks really are more profitable under Obama than under Bush. Why would that be? It’s in answering this question that I think Goldfarb again misses the mark a bit, giving short-shrift to key reasons, and harping on minor details.
First off, Goldfarb does hit on two key drivers of bank profit — explicit bailouts and soft bailouts, like special Fed lending programs for banks. Most importantly, Goldfarb remarks on the “common perception that big banks are less risky because the government will still step in to save them if they get into financial trouble.” That perception is officially embedded in the banks’ credit ratings.
But Goldfarb also hits on items that seem fairly small — like banks getting fees from debit cards linked to unemployment benefits. It’s a downright stretch to say banks are benefitting from shrinking public payrolls driving people to invest in private IRAs and 401(k)s.
Meanwhile, he leaves us big subsidies like the repeated bailouts of Fannie and Freddie, and the GSE’s backdoor bailout of Bank of America through an overgenerous settlement regarding bad mortgages. Goldfarb talks about bank consolidation, and how that helps create the “Too-Big-To-Fail” threat, but never acknowledges the possibility that regulation might be driving the consolidation
Again, I recommend Goldfarb’s piece, and I would hope it would spur more discussion of the causes.
