I have discussed the financial industry on numerous occasions. My sentiment has not changed.
Those looking for some kind of investment “payday” should stay clear of the banks as an investment. The risk is still very high. Unrelated to my prognosis, I can tell you that I have NEVER personally INVESTED in banks and I don’t ever plan to because I feel they are parasites. I could go on and on how criminal this industry is, but I don’t have the time to write volumes of books. But let’s have a look at what they’ve been up to lately.
The big banks — the banking cartel, or the banks that own the Federal Reserve— have received almost all of the bailout funds with which to scoop up smaller banks (which in some cases were not insolvent). Despite raising fees and credit card interest rates while paying out essentially nothing for deposits, these criminals have not been satisfied. They have made risky gambles in the capital markets with depositors’ assets. But don’t assume shareholders have benefited because they have not.
In addition to collapsing share prices and stock dilution, the banks have extorted shareholder equity by issuing employee compensation that (in some cases) has not only wiped out TOTAL profits from 2009, but there are instances where compensation has actually exceeded total profits.
Over the past 5 years, the biggest banks have paid out an eye-popping (roughly) $500 BILLION in bonuses for employees. This unbelievably ridiculous sum of money has encouraged them to take excessive risks and engage in fraud, knowing there are no real penalties. This taxpayer extortion has served to strengthen the moral hazard the industry has enjoyed for decades.
Normal employee compensation is ridiculously high in the financial industry, at around 60% of profits. But in 2009, compensation soared as high as $1.45 for every $1 of profits for at least one bank!!! I consider this shareholder fraud. Of course, they get away with it for the same reason Washington gets away with its own brand of criminal activity — most Americans have been transformed into compliant zombies.
Even more disgusting is the fact that much of these “reported earnings” are NOT real earnings at all, but have been created by a relaxation of market-to-market accounting and changes implemented in 2009 (with the approval of Washington) as a way to realize short-term profits to justify ridiculous bonuses.
But these tactics are short-term. And without a real recovery, I can guarantee you these banks will get hit big with losses. This is likely to lead to either more lenient accounting changes or more bailouts, so the banks can repeat the process of extorting funds from shareholders and taxpayers.
Let’s take a look at some of these criminal payouts. For 2009, Citigroup (C) “earned” $24.9 billion. But after paying its greedy, useless, criminal employees, the soon-to-be deceased member of the banking cartel actually reported a NET LOSS of $1.6 billion!! That means Citi stole every penny of earnings and borrowed money to pay employee bonuses!
Other members of the cartel aren’t far behind Citi, with Bank of America (BAC) wiping out 88% of its 2009 profits by shuttling these funds to employees. Morgan Stanley (MS) sent 94% of profits to its employees. JP Morgan (JPM) (arguably the biggest of all banking criminals) sent 63% of 2009 profits (much of which were based on the world’s two biggest banking heists—WaMu and Bear Stearns, financed by taxpayers) to its employees.
Meanwhile, America’s largest insolvent banks — Citigroup and Bank of America — are being kept afloat only by the blank check from the Federal Reserve and U.S. Treasury. And they collapsed the quarterly dividend to common shareholders. Citi completely eliminated its dividend.
The fact is that these insane “bonuses” are largely responsible for this economic collapse. It’s like rewarding thieves for robbing people. The more they are rewarded, the more they steal. The ONLY difference is that the banking executives are immune from criminal prosecution. First of all, without any limits on compensation, bank A is free to raise compensation above what bank B has set, and bank C does the same and so forth. This sets off a compensation war paid for by shareholders and taxpayers.
To justify this extortion, banks claim they need to offer “competitive” compensation to attract and retain the “best talent.” The so-called big concern in capping bonuses and other forms of executive compensation is that it will cause a “brain-drain” on Wall Street, as the “geniuses” opt for better positions elsewhere.
I challenge anyone to show me a company that would line up to hire individuals who destroyed the global economy. Moreover, the last thing Wall Street has are geniuses. These are mainly guys who have lived an easy life, from the non-rigors of business school, leading them to the path of easy money as a reward for the greed, incompetence and in many cases, their criminal activities.
All throughout, the culture of these useless parasites has bred a sense of unsubstantiated entitlement. Let them go, as they will join the ranks of the unemployed.
Goldman Sachs (GS) has taken a different approach, rewarding its criminals around 60% of 2009 earnings, despite recording its biggest profits in history. It has done this as a PR tool to calm the outrage people have over the many crimes this bank has committed. As the figures below show, for 2008, compensation was much higher relative to revenues, net income or by virtually any other measure.
