None of the big four banks had a single day in which they lost money trading last quarter. Henry Blodget says that’s thanks to the government’s near-zero-interest-rate policy:
[T]he US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What’s more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits–by borrowing from the taxpayer and then lending back to the taxpayer.
Why is the US government still lending banks money at near-zero interest rates? Ostensibly, for the same reason that the government bailed out the banks in the first place: So the banks will lend money to small businesses, big businesses, and other participants in the “real economy.”
But the banks aren’t lending money to the real economy: Private sector lending has fallen off a cliff. And one reason private sector lending has fallen off a cliff is that lending money to the private sector is risky. Lending money to the government, meanwhile, is nearly risk-free.
You can find me @jwindish, at my Public Notebook, or email me at joe-AT-joewindish-DOT-com.