Investment banks---basket cases

If a company posted a 62 per cent drop in quarterly profits, wouldn't common sense tell you that it is trouble? Apparently not in investment banking. Yesterday Credit Suisse reported such a fall in earnings, and the street offered up a small sigh of relief. Why? the investment bank beat expectations! Now if that is not perverse, 18Brumaire doesn't know what is. The same logic applied to JP Morgan Chase and Citibank, too. Investment banking is a proverbial basket case. The industry shot itself in the foot with fancy financial instruments which falls under the category of the subprime Ponzi scheme meltdown. Bear Stearns is history already, and when the Gang of 4 at Treasury, the US Fed, and the NY Fed allowed Jaime Dimon to absorb Bear Stearns at the bargain basement fire sale rate of us$2 a share, well the world markets tumbled badly. Despite an upward trend, the damage was done, and quarter after quarter investment banks are forced to write off us$ billions on bad mortgages. Some like JP Morgan and Goldman Sachs have enough black ink to hide their exposure, but others like UBS, Credit Suisse, Lehman, Merrill, Wachovia cannot. [Fear not gentle readers the day of reckoning is coming soon for JP Morgan at least. It is holding a fat wad of Alt-A mortgages which are beckoning for payment, and running close to us$400bn. More on that in the future!] The investment banks' stockholders ain't too happy, but the US Fed and the Treasury have opened lines of credit to them. So no matter how badly they're managed, the US rate or taxpayer is going to bail them out, and the poor bastard whom the banks and mortgage lenders seduced into buying mortgages are going to be on the street. Herr Bush has been caught napping on the job, and bathroom attendant Ben Bernanke and anal hair stylist supremo Hank Paulson are now scrambling with makeshift solutions to keep the industry afloat whilst impoverishing the whole country, and not really attacking laxity in regulation, corruption, malfeasance, and letting the US$ weaken more and more. Now 18Brumaire is going to repeat what it has said at other times. During the 1980's when the banks induced Latin American countries, businesses, and banks to take loans and then they could pay them back, a banker made the banal remark, that when business is good, private industry wants the government off its back for it's raking in the money, but when terror and panic and crisis occur, there they are like blindmen on a street corner or in the money bazaars hand out with a deep tin cup begging for the public's money. And this is how it is today. No reform, panic, flailing with a sabre in roiling financial waters, and the fear that the system is going belly up, which it ain't. Unless the public sheds its passivity, unless brave politicians denouce pious verities, the charade will continue. Already the US is sinking into the west of the second rate...and its people will grow poorer and poorer but not the shit that rules the country, lead a hedonistic lifestyle, has money salted offshore, and run the country.