How Wall Street is Making its Billions

From Philip Greenspun:

Wall Street banks have had profitable quarters. JPMorgan Chase reported $3.6 billion in profit (more than $1 billion per month). Goldman Sachs was only slightly behind, at $3.2 billion. These profits supposedly came from “trading.” I asked a friend who has worked in the money business how this was possible. “For someone to make money trading, there has to be someone on the other side of every trade who is losing money. Where does each bank find someone who can lose $1 billion every month?”

He explained that “carry trade” would be a more accurate description of what they’re doing. Because of the Collapse of 2008 financial reforms, the big investment banks are able to borrow money from the U.S. government at 0 percent interest. Then they can turn around and buy short-term bonds that pay 2 or 3 percent annual interest. Now they’re making 2 percent on whatever they borrowed. They can use leverage to increase this number, by pledging some of the bonds that they’ve already bought as collateral on additional bonds.

(via Boing Boing)

7 Comments

  1. yeah remember that ron paul guy you made fun of on here? he’s the one that said this would happen.. lolz cynical fail End the Fed

  2. Is this for real, or just conjecture? Because it sounds like complete speculation to me. Additionally, for banks to make $1 billion a month by loaning out money at 2% or 3% interest, they’d have to be loaning out $400 billion to $600 billion dollars on that system, which sounds pretty unlikely.

Comments are closed.