American banks’ ‘amazing steal’

“I think the banks have pulled one. They maybe didn’t plan on it, but looking back it’s quite an amazing steal…

“The banks got an amazing deal last September, they were rescued by the taxpayer, and then refloated themselves giving the taxpayer very little of the upside and now they are going to have very high profits and pay themselves bigger bonuses,” says Simon Johnson.

That’s the view of American banks, not from a leftist, or a European, or Hugo Chavez, but the man who was chief economist of the International Monetary Fund just last year.

That America’s banks have carried off an “amazing steal” from the US taxpayer.

To an outsider in America, such as myself, the mainstreaming of anger against the banking elite is quite shocking. It’s not just him. I also met David Rothkopf, a Bill Clinton appointee to the Department of Commerce. He said:

“The banks took the money they restructured, some of them fell, but those that stayed behind didn’t just have a bonanza, but one of the biggest bonanzas in their history… so people are asking: ‘were they telling the truth?’, and ‘where’s our share of the bonanza? …. How can it be when they wreck the economy, we are responsible to these rich guys in their time of crisis, but they aren’t responsible to us?”

That is a rather typical response to the bank reporting season in the US. The banks that are still on their feet are cleaning up. Today Wells Fargo announced an 81 per cent jump in second quarter profits. Last week, Goldman Sachs and JP Morgan made billions of pounds and set billions aside for banker bonuses. This would be uncontroversial in normal times.

I remember when, as a young graduate I went to New York to visit friends. Bankers were looked up to, respected, even allowed privileged entry to the Big Apple’s hippest clubs with a flash of their Lehman Brothers’ pass. My sense now is that it has changed utterly.

The banks are beginning to see the light at the end of the tunnel of the subprime crisis. The problem is that for ordinary Americans the crisis is undoubtedly getting worse.

Unemployment will top 10 per cent by autumn, and higher on other measures. That is a Eurosclerotic level of unemployment, but without the European-style welfare system. Homelessness in DC, which has always been an issue, is visibly worse.

Ordinarily the American dream endures a recession through internal migration. Go to California, find a job, and build your house. Now that dynamic is greatly undermined by the housing crisis. If you are in negative equity, or can’t get a mortgage, it’s rather difficult to move to the jobs.

In Baltimore, Pamela Ball looks wistfully at the now empty townhouse recently repossessed by Wells Fargo. “It sits here empty and it really breaks my heart”, she says. Pamela Ball’s American nightmare is a symbol of how it is no longer accurate to call this a subprime crisis. It is a generalised housing crisis, with prices still falling. Prices had not fallen across America in the entire post war period. The uninterrupted run of rising house prices underpinned America’s consumption economy, its role as the world’s consumer-of-last-resort.

So that is my first impression of the US from this visit. Fundamental axioms of American economics and politics appear to be under threat, the essence of the American dream itself.

The banks may have moved on from subprime but the America that can consume so much on credit, the America that automatically lionises the success of wealthy bankers, the America we have known for so long, appears to be changing too.