The Banks Have Learned They Can Do Anything

Thursday, 15 October 2009 10:34 By Paul Quils, David Cayla and MarieNoelle Lienemann, Libération | name.

The Banks Have Learned They Can Do Anything
In 1959, bankers went to school to learn how to support the real economy. Marie-Noelle Lienemann, David Cayla and Paul QuilÃ

    The banks are doing better; stock market indices are shooting up; bonuses continue to flourish. After having been on the verge of collapse, the banking sector is returning to the insolent profits of several years ago. In the United States, JP Morgan Chase announces earnings up 36 percent in the second quarter, while those of Goldman Sachs jumped by 90 percent! Even the convalescent Citigroup, bailed out to the tune of 45 billion dollars (30 billion euros) by the American Federal government, is declaring a net profit of 4.27 billion dollars (2.8 billion euros) in the second quarter.

    France is not spared this avalanche of profits. It's enough to see the spectacular turnaround at the bank where the brilliant Kerviel traded: In three months, Société générale went from a loss of 278 million euros in the first quarter to a profit of 309 million in the second. BNP Paribas, now become the largest European bank after its swallowing of the Belgian Fortis, is announcing a profit of over 3.1 billion euros for the first six months of 2009.

    If these profits had any connection to the activity of the real economy, it would be good news. Instead, with unemployment growing (the American private sector destroyed another 250,000 more jobs in September), companies are not investing and households strangled by debt are legion. In such a context, in which banking practices have not changed, it is illusory to hope, as the government does, for lending that would be likely to relaunch production and consumption to resume.

    Banks are not investing in the real economy primarily because it's not profitable enough. So, where do their fabulous profits come from? Quite simply, from their speculative activities and the rise in financial markets. With central banks reducing interest rates, profits from market activities are taking off, while commercial and retail banking remain in a dead zone. Returning to the good old methods of the "leverage effect," trading rooms are borrowing massively to maximize their profits from high yield products, the complexity and opacity of which concede nothing to the famous "subprime" loans.

    The banks have learned at least one lesson from the crisis. They now know that no government will allow one of them to go bankrupt. The Lehman Brothers episode hurt poor Henry Paulson (secretary of the Treasury under George W. Bush) much more than it did the banks. They even came out ahead. The strongest ones profited from the bankruptcies of the little ones to consolidate by buying the assets of the "lame ducks" at rock bottom prices. The banking sector has emerged from the episode concentrated to the point that a new bankruptcy would be politically unthinkable. So, fortified by the implicit guarantee of the taxpayers, the banking sector may speculate without risk and rake in profits.

    In France, the government could have - as could have London or Washington - proceeded to the complete or partial nationalization of the banks it assisted. It could have, with the rationale of optimizing public funds, recovered part of these profits in the form of dividends. It could have, by reselling its shareholding once the crisis had passed, cleared capital gains in the billions of euros (12 billion euros of potential capital gains for BNP Paribas and Société générale alone). "The state does not speculate," answers Minister of the Economy Christine Lagarde ... who forgets to add: "We leave speculation to the banks!" Had he truly wanted to "restructure" financial capitalism as he promised, Nicolas Sarkozy could have had the government participate as a full shareholder in the banks by naming public administrators and requiring the end of this lethal speculation.

    We cannot remain passive in the face of such scandals. We must get to the heart of the matter. What's essential, first of all, is to halt this insane rationale, according to which, now that the crisis is behind us, frenzied speculation may resume "as before." What's essential is that the government cease reinforcing a predatory system, the normal activity of which consists of massively hijacking the wealth created in the real economy for the financial markets casinos. What's essential is to prevent the abyss of the next crisis from being dug by banks allowed to make profits that do not correspond to their real contribution to the economy.

    There's a simple solution to that problem: it's to impose a ceiling on banking profits through taxation. Since the banks are incapable of regulating themselves, since the G20 has not succeeded in imposing anything but a cosmetic framework, we must require that bank profits be returned to the real economy by allowing them to finance health, education and research expenses, by giving the government the means to invest in public transportation and better assure security and finance public services. That's what's at the heart of the matter and essential if we really want "tomorrow to be different from what went before."

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    Translation: Truthout French language editor This email address is being protected from spambots. You need JavaScript enabled to view it..

Last modified on Thursday, 15 October 2009 10:43