JPMorgan Illustrates What Banks Do When They Have Money

And it isn’t lending it out cheap:

JPMorgan will on Thursday unveil a £1bn deal to buy Cazenove, the UK broker with which it has had a joint venture for the past five years. The bank is to pay about 535p a share in a deal in which David Mayhew, widely recognised as one of the City’s best-connected corporate advisers, will retain the title of chairman of the Cazenove brand.

Last year myself and Stirling both noted that what would be done by banks if they were bailed out is to horde their money, not lend it out cheap, and save it to buy up competitors, make leveraged plays and so on. That is EXACTLY what has happened. Exactly.

During a downturn, if you have money, you don’t want to lend it out for low gains when you can buy up competitors, cheap. You don’t want to lend it out cheap, when you can make leveraged plays off the bottom of a stock and commodity market which is bound to go up because trillions are being poured into it by central banks. You want to take that money, and buy things while they are cheap, not lend it out for 4 or 5% returns, when you can make many many times that.

Why, exactly, governments expect banks who have better ways to make money to act like retail banks who don’t have any other way to make money but lend out at prime +3 or 4 percent is beyond me. They think they’ll do it out of gratitude for being bailed out, or some sort of sense of civic duty? Most politicians may be stupid, venal and corrupt—but it’s that very greed and venality which means they should understand that banks will do no such thing.

Banks will do it only if they are forced to do it. Remove retail banking from investment banking, insurance and brokerage services, and disallow any risky games on the markets for retail banks. Remove all special facilities from non retail banks because Goldman Sachs should not be doing highly leveraged plays with free money from the Federal Reserve. And reinstitute serious leverage limits, not just for retail banks but for everyone.

As for retail banks, if they don’t lend to the public at rates approved of by the Federal Reserve and Congress, they too should lose their access to special facilities. Banks are given the valuable right to borrow money for almost nothing, and to, in effect, print money by lending out money they don’t have. Those are privileges which are given to them in the expectation that they will use them to benefit the economy. If they refuse to do so, they should lose the privileges.

None of this is rocket science. Those of us who predicted both the crisis and what the bungling of the crisis would cause, however, are precisely the people who are not listened to by those in power. Obama is having his jobs summit, and forget nobodies like me, he isn’t even inviting somebodies like Stiglitz and Krugman.

If you’ve been right down the line, then you are precisely the sort of person who isn’t “serious” and shouldn’t be listened to when it comes to what it takes to fix the problem.

Why? Because everyone knows that fixing the problem will end the gravy train for a lot of very rich people. A lot of very rich people who give a great deal of money to Democrats in general, and gave a lot of money to Obama in particular. If the cost of keeping that gravy train and the donations it enables going is tens of millions of unemployed people, well, so be it. Because serious people know that real change isn’t going to happen under Obama or under this Democratic Congress, so there’s no point in even talking to people who might suggest it.

Plus ca change. Plus c’est la même chose.