PUMPED UP PROFITS

Have you ever had a friend or an acquaintance that strutted around, announcing to the world that he was a "self-made" man? You know the kind. Their parents paid for tutors, paid their college expenses, and then lined up jobs and money for their investments after they got out of college. Even when they fell on their face, family friends and contacts looked the other way and gave them a chance because "he's really a nice kid" who comes from a good family.

If this sounds like George W. Bush, it's not coincidental.

Well, guess what? We have the same dynamics working in the banking industry today.

JP Morgan Chase just announced quarterly "profits" of $3.6 billion. Representatives from JP Morgan Chase pointed to increased trading, income from fixed-income markets, and other jargon-laced market developments as the motor behind growing profits. What JP Morgan Chase left out is that their profits - and their existence - are really the result of more than $20 trillion in taxpayer funded bailouts and other government guarantees.

Think about it. Without his family name, their friends, and their financial networks our former president would have been, at best, an asterisk in American history. Similarly, without government subsidies, bailouts, and legislated protections for the industry, JP Morgan Chase and other banks would be headed for history's ash heap.

Even if JP Morgan Chase were the best run financial institution in the world (they're not) their existence and profits today are completely dependent on taxpayer money making other financial institutions whole. Without this, their incredibly stupid bets and poor investments would be paying perhaps 35 cents on the dollar (if it paid out at all), instead of the full value they're getting now.

Still, we get this nonsense from what is supposed to be a respected market analyst:

“[JP Morgan Chase's] revenue growth was very impressive,” said Anthony Polini, an analyst at Raymond James & Associates. “They’re benefiting from a turn in the economy and they’re asserting their dominance.”

If Anthony Polini were to tell the truth (or had a clue) he would have said the following:

The market bailout was great for JP Morgan Chase. Having the federal government use taxpayer money to fund the industry's stupidity and greed really benefited every player in the industry. With guaranteed bailouts, JP Morgan Chase not only looks healthy but they will be able to make big profits well into the future.

Market players like Anthony Polini, however, don't understand what's going on so they couch their "analysis" in superficial market lingo, which makes it appear that they have a grip on what's happening.

But he's not the only one in the industry doing this. Take this snippet from the CEO of JP Morgan Chase, James Dimon:

“While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue ... Despite the near-term uncertainty about the path of the economy, our strong capital position and underlying earnings power will enable us to continue to invest in our businesses, creating a lasting franchise for many years to come.”

If I run this through my "Truth-O-Meter" this is what Dimon is really saying:

After the first big wave of foreclosures and employee pink-slips the federal government did little to nothing to protect America's middle class. This was great for us because it told us which side the government was going to take in this mess. We can only hope this continues ... As well, the trillion dollar guarantees that our industry got will go a long way in covering both our bad bets and the stupid decision-making of others in our industry. This will allow us to continue making big profits at taxpayer expense, no matter how much money we actually lose, long into the future.

With taxpayer dollars and other market guarantees totaling almost $24 trillion there's a certain Alice in Wonderland quality to Wall Street crowing about revenue growth and their investments paying off, as if they're legitimate "market" developments. They're not. They are subsidized and pumped up profits paid for by the American taxpayer.

This is corporate welfare, plain and simple.

- Mark