The Washington Post penned this look at bank profitability in the years after the financial crisis. The punch line?
President Obama has called people who work on Wall Street “fat-cat bankers,” and his reelection campaign has sought to harness public frustration with Wall Street. Financial executives retort that the president’s pursuit of financial regulations is punitive and that new rules may be “holding us back.”
But both sides face an inconvenient fact: During Obama’s tenure, Wall Street has roared back, even as the broader economy has struggled.
Why is this the case? The Post continues:
Behind this turnaround, in significant measure, are government policies that helped the financial sector avert collapse and then gave financial firms huge benefits on the path to recovery. For example, the federal government invested hundreds of billions of taxpayer dollars in banks — low-cost money that the firms used for high-yielding investments on which they made big profits…
A recent study by two professors at the University of Michigan found that banks did not significantly increase lending after being bailed out. Rather, they used taxpayer money, in part, to invest in risky securities that profited from short-term price movements. The study found that bailed-out banks increased their investment returns by nearly 10 percent as a result.
Of course, this boost in profitability runs headlong against banker complaints that financial regulation is hobbling their business.
This morning brings us headlines that banker pay is not following corporate profits this year as the Eurozone crisis and new financial regulation have crimped trading profits amid a slow environment for lending.
The Wall Street Journal writes that bonuses will be down between 20 percent and 30 percent in 2011 (typically, bank bonuses are a significant part of worker compensation, with checks getting cut early in the next year.) The New York Times adds that financial CEOs will also see their year-end compensation cut.
What’s a 20 to 30 percent knock get you? Managing directors (high level managers below the executive tier) are still expected to cash $900,000 or so in bonus compensation.