Tuesday, January 19, 2010

Banking: Nice Work If You Can Get It

Tunku Varadarajan says Americans are right to be angry with big bankers who are soaking up profits without adding value to the economy.
This interest margin may not sound like much, but when applied to the trillions of dollars that make up various banks' balance sheets, it produces profits in tens, if not hundreds, of billions of dollars. For a well-leveraged bank, this is a safe "carry" trade as long as the value of government securities does not collapse. In fact, a bank would have to be incredibly inept not to make money in these circumstances. Awarding bankers bonuses is tantamount to paying them for not being certified cretins.

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