Goldman Sachs and Helicopter Ben

Econophile's picture

From The Daily Capitalist

Don't expect a thank you note from Goldman Sachs or any of the other banks that had perfect trading days in Q1. "Perfect" means that they had no days of trading losses for 63 trading days.

Goldman Sachs, which makes more money from sales and trading than any Wall Street firm, reported yesterday that it made at least $25 million trading every single day of the first quarter, the first perfect quarter in the company’s history. The company’s fixed-income, currencies and commodities business, known as FICC, and equities unit generate those returns by making markets for clients rather than betting the firm’s own money, Cohn said.

They weren't alone:

Four of the largest U.S. banks, including Citigroup Inc., racked up perfect quarters in their trading businesses between January and March, underscoring how government support and less competition is fueling Wall Street’s revival. Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc., the first, second and fifth-biggest U.S. banks by assets, all said in regulatory filings that they had zero days of trading losses in the first quarter. Citigroup Inc., the third-largest, doesn’t break out its daily trading revenue by quarter. It recorded a profit on each trading day, two people with knowledge of the results said.

You may ask: how is that possible? Are they that good? The reason is that they are taking advantage of free money from the Fed:

The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”


The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.

 

The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18.