Over the past 3 years, bank profits soared as they were able to set aside mark to market accounting and lever up ‘money for nothing’ from the Fed. At the same time revenue in other sectors and the real economy weakened. Taking out financials, S&P 500 earnings growth in the second quarter was negative, down 1.2%. But bank earnings are now also in retreat as the traditional legs of their business model have weakened with anemic trading volumes, slumping loan demand, increased regulation, growing legal battles, and now– the prospects of less free money from the Fed. We should make no mistake, the too-big-to-jail banks will be back looking for bailouts from taxpayers when the next wave of price discovery hits.
Meredith Whitney, chief executive officer of Meredith Whitney Advisory Group, talks about yesterday’s shutdown of the Nasdaq Stock Market, regulatory probes of U.S. banks and the outlook for Ben S. Bernanke’s successor at the Federal Reserve. Here is a direct video link.