Why It Will Continue, Continued

With quarterly earnings we get quarterly bank earnings. Interest in them should be heightened by all that has happened since June 2014. And it is, only for seemingly the wrong reasons. Deutsche Bank (DB), the latest, reported shockingly negative preliminary results which only continued the trend. Even though the media largely gets it backwards, at some point as enough time passes it doesn’t even matter. We are told bank earnings and revenue are under pressure from a slew of “tough markets” but what makes those markets so untenable in the first place?

Goldman Sachs (GS), one of the purest of the former shadow banks, is shrinking. If they can’t make money in FICC then there is no money. It is bank balance sheets that manufacture the internal eurodollar “currencies” that make it all work. There is no profit in it, to the point now where what little reward looks more like 2009-type levels of decay and dysfunction.

Goldman’s revenue from trading bonds, currencies and commodities (FICC) was $1.12bn, the lowest since the fourth quarter of 2008 during the depths of the financial crisis, during which the firm recorded losses from investments and trading credit products.

Bond trading by US banks has been declining since 2009, mainly due to new rules that discourage banks from taking unnecessary risks.

The connection is blatantly obvious, but the media won’t make it because economics incessantly intrudes, demanding that what is observed isn’t real in favor of what isn’t that looks less likely by the minute. The world acts increasingly like there is a monetary shortage, a dollar shortage no less, but the media can’t seem to find it. Capital rules that “discourage banks from taking unnecessary risks” didn’t do any of that, as banks took a great many risks over the past few years regardless of jawboning about Basel. Those that took more than others, such as Goldman, Deutsche Bank and Credit Suisse (CS), are the very banks that have performed the worst in trying to make money in money. FICC is the guts of wholesale money.