Wed, 15 Apr 2009 07:46:46 +0000 – By Peter FerraraDirector of Entitlement and Budget Policy, Institute for Policy Innovation
Goldman Sachs just announced first quarter profits of close to $2 billion. Last Thursday, Wells Fargo forecast shockingly sharp first quarter profits of $3 billion. This is just the beginning of a series of financial reports from large banks that will show soaring bank profitability. This is why in recent weeks bank stocks have exploded upwards by over 60%, lifting the entire stock market along with them.
Why now? As Larry Kudlow said last week, "the real bank bailout is the upward sloping yield curve." In other words, the interest rates banks pay on CDs and other short term money are very low, while the rates they earn on mortgages and other bank lending are much higher.
This is developing even before Treasury Secretary Geithner could get his recently announced $1 trillion bank bailout up and running. That bailout is now completely unnecessary! Yes, there are still a lot of toxic mortgage related assets on bank balance sheets, and outstanding adjustable rate mortgages could add still more. But with the wide spreads banks are now earning, at current interest rates, banks don't need any further taxpayer help to deal with it.
To the contrary, the big problem for banks right now is that the Obama administration is refusing to allow banks to pay back their TARP bailout funds!
Obama and his powermongers are doing that because when a bank receives taxpayer funds, the administration uses that as a reason for controlling the banks, just as they used the auto bailout as the justification for dismissing GM Chief Rick Waggoner and the company's Board of Directors in an effective complete takeover.
Congress and the public should speak out to shut down Geithner's trillion dollar bank bailout, and to demand that Obama allow banks to pay off their TARP taxpayer loans. If Congressional Democrats won't do that, then Republicans should be lions speaking out over this.
Indeed, the recession may even be over as measured by the return of economic growth. When the numbers come in, we may find that some growth started in March.
The problems for the economy now are all threatened by bad government policies. Obama's big tax rate increases are scheduled to take effect at the end of next year, and that will start slowing the economy and the stock market a year from now. The left wing Democrat extremists now running Congress may try to accelerate those increases.
Then there is the Obama cap-and-trade energy tax that will drop a huge boulder on the economy if it is enacted. That is currently estimated to raise effective taxes by $645 billion, but it is likely to cost three times that much, or close to $2 trillion, all completely unnecessary. In addition, liberal Democrat states such as New York, California, and Illinois are adopting huge tax increases that will also hurt the national economy.
Obama's massive increases in runaway government spending also threaten to cause rising inflation and higher interest rates due to excessive government borrowing once the economic recovery gets underway. The spending from Obama's extreme trillion dollar stimulus plan adopted just weeks ago has not even begun in earnest yet, and what would help the economy is to repeal it not implement it.
Peter Ferrara is Director of Entitlement and Budget Policy at the Institute for Policy Innovation, among other posts. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.