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Written by Bryan Lutz, Editor at Dollarcollapse.com:
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The fearsome Black Knight that is Wall Street never ceases to lose a battle. Apparently, even while bleeding. But with the support of the Fed’s royal banner, and the blessings of “we got your back” fiat money, how could they? At least until their coffers bleed out from higher for longer interest rates, and losses in the derivative and bonds markets. Until then…
JP Morgan raked in over $12.6 Billion in record profits this year during Q1. That’s a little over 52% increase in profits from the same time period in 2022.
What caused the increase was bank run after bank run. After Silicon Valley Bank, Credit Suisee and others hit rock bottom, Americans scrambled to move their money to “secure” banks. Anticipating this, traders bought more shares in JPM. And they did it all with a steady reassurance that 2023’s banking crisis was merely “a flesh wound.”
JP Morgan’s CEO, Jamie Dimon knew it too. Although he knew triage was coming for his firm too. In April, he said:
“…“storm clouds” threatening the banking sector had grown as a result of last month’s short-lived crisis but assured that the lender was prepared for further turmoil.”
And the Guardian went on to reveal the partial truth:
“The bank’s profits benefited from the same rise in US and global interest rates that contributed to last month’s short-lived banking crisis, which started with the surprise collapse of Silicon Valley Bank and later led to the emergency rescue of Switzerland’s second-largest lender, Credit Suisse.”
The Whole Truth
The whole truth is that the Financial Services industry is bleeding. Not surprisingly, the cognitive dissonance of the market is still there. The Fed’s higher interest rate has yet to fully detox the fiat fantasy we live in. So, it is easy to see how zero-interest rates and no-fault protection on over-the-top bets in the derivatives markets have led to the belief that maybe, just maybe, the Big Boys on Wall Street can maintain the promise the current financial system has committed to.
Then there’s this: In March 2019, the financial world’s hubris seemed almost overwhelmingly credible. The FRED Blog published an article entitled, Is the financial sector becoming more productive?
The premise is this:
“Since the recovery began in 2010, employment has rebounded and the unemployment rate started declining. But this recovery in employment has not been uniform across industries.”
Since the financial industry is contributing more to GDP and employment is down, the financial sector must be more productive. The factors mentioned are changes in technology, which I’ll talk about soon, and the introduction of Quantitative Easing monetary policy by the Fed.
The authors also found it interesting that employment rose dramatically during the previous two recessions but fell during the GFC of 2008. First, employment had been falling since the introduction of new financial technologies in 2003/4. Second, the reason seems obvious to anyone controlling the finances of a business running on as little debt as possible. To others, obvious in a crisis.
When there is a financial crisis, you need more people. You need help for the following:
- Debt gets restructured.
- Companies seek out risk management services.
- Regulators like FINRA, the SEC, or CFTC may create new regulations or compliance standards.
- Governments may create new programs to ease the pain.
- And mergers and acquisitions happen as the weak links get bought up.
Employment is Triage
Now that fiat is failing, with major innovations in technology, employment in the financial sector has become triage.
Since the turn of the millennium, the financial world has seen huge changes in technology. Fintech has become an entire industry unto itself. Massive amounts of employees are no longer needed to settle accounts. Regulatory and compliance changes simply require a small team of software development specialists. Risk management can be done through AI. And traders can live their best life now, with a few simple software installs without an advisor from the bank.
Right there, that’s a few reasons why employment decreased since 2008. In 2020, the pandemic was its own beast, with the financial sector mostly earning on inflationary assets, and easy options on rebounds. And the financial sector pulling out defibrillators. So, what happens now?
Now we witness a slow decline in both employment and value added to GDP as the Banks try their best at triage:
After Q1 2023, the Fed’s declined to measure the value America’s financial activities contribute to GDP. Those stats are conveniently not there. Job openings in the financial sector continue to stay higher than pre-pandemic levels as of the September 2023 report from the U.S. Bureau of Labor Statistics.
(Source: U.S. Bureau of Labor Statistics, Job Openings and Labor Turnover Survey)
What does this mean? The banking sector, Wall Street, and all other financial activities are bleeding. Continued higher job openings may mean the banks are hiring more “nurses” to attend to their internal financial hospital. All while JP Morgan, Goldman Sachs, and Citi patch up their wounds from those moving their money to more “secure” locations – away from local creditors.
What is Secure?
The Banking Industry still hasn’t recovered from its spring crisis. After appearing to make a partial recovery from May to August, the KBE is back on the decline.
Here’s the SPRD S&P Bank ETF(KBE):
The temporary, short-term profits you see above could be the results of consolidation and attempts at financial recovery by the biggest Black Knights on Wall Street. And traders playing the ETF… You can see volume increases at the bottom in May. But it remains to be seen how long the entire system can continue bleeding before there’s no blood left.
One thought on "“It’s just a flesh wound”: Open Wounds on Wall Street Force Banks into Triage"
The banks must be in real pain now, a few months ago I got a notice from Chase if I opened a new account and arranged direct deposit they would give me $225 .. it worked. Then a few days later I get a similar notice from Capital One, open a new account and arrange direct deposit and they will give me $350 after the second deposit. The second deposit happened this morning so any time now ….