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QE2 Was a Bust

BOSTON (MarketWatch) — It‘s cost $600 billion of your money. And it was supposed to rescue the economy. But has Ben Bernanke’s huge financial stimulus package, known as “Quantitative Easing 2,” actually worked as planned?

QE2 is being wound down in the next few weeks. Fed Chairman Ben Bernanke has said it has left the economy “moving in the right direction.”

Yes, it’s sparked a massive boom on the stock market. Ordinary investors have started piling back into shares again. And last week we saw the latest example of the return of animal spirits on Wall Street, as stock in new dot-com LinkedIn LNKD -7.44% skyrocketed on its debut.

The truth? QE2 has created a massive new bubble in dollar-based financial assets, from stocks to gold. Meanwhile, it has had zero visible effect on the real economy.

Take jobs. According to the U.S. Labor Department, since last August the number of full-time workers has gone up by just 700,000, from 111.8 million to 112.5 million.

At a cost of $600 billion, that’s $850,000 a job.

The picture’s even more meager. Over the same period, the number of part-time workers has gone down by 600,000. In other words, we’ve basically shifted 600,000 or 700,000 workers from part-time jobs to full-time jobs.

Housing is double-dipping. Big time. According to the National Association of Realtors, the average price of an “existing” (i.e. used) home was $177,300 in August, just before QE2.

Today? It’s $163,700 — or 8% less.

Economic growth has slowed. It was 2.6% last summer. It’s a miserable 1.8% now.

Meanwhile inflation has risen, from 1.2% before QE2 to 3.1% now.

Meanwhile QE2 has created an entirely artificial bubble in all dollar-based assets.

Look at the stock market. Since Aug. 27, when Bernanke unveiled his plan for QE2 in Jackson Hole, Wyo., the S&P 500 has risen by 26%.

So far, so good, right? But it’s an illusion. What’s really happened is a decline in the value of the dollars that the shares are measured in.

Measured in hard currencies, the stock market boom has been much less impressive. In Swiss francs, the S&P has risen by just 8.4% since Aug. 27. In currencies like the Swedish krone and Australian dollars it’s even less. Measured in gold, the S&P 500 is up just 4.5%.

Meanwhile the illusion of a boom is causing all sorts of investors to take crazy risks. Witness LinkedIn’s IPO. Economists from the so-called “Austrian” school say this is a reason to go back to a gold standard. It certainly makes you wonder what’s next.

Is Goldman Sachs Making Too Much Money?

There’s no shame in making money. Making money is, after all, every company’s goal. And when our companies do well, that’s generally good for the country. Under normal circumstances Goldman Sachs would have every reason to brag about it’s first quarter profits.

But now—with Goldman facing charges for securities fraud and apparently seeking to block financial reform legislation—the bank’s windfall profits seem to raise the question of whether it’s making its money legitimately.

Goldman reported an impressive $3.3 billion first quarter profit today. That’s its second highest quarterly profit since going public in 1999, and it comes after earning a record $4.79 billion in the fourth quarter of last year. It’s also an increase of 91% on the year. And on revenue of $12.8 billion it’s a tidy 26 cents profit for every dollar it earned, which is actually down from the from the almost 50 cents of profit it made for every dollar of revenue the quarter before.

Of course, these profits have nothing to do with the 2007 trades the Securities and Exchange Commission says are fraudulent. And Goldman’s reputation as the gold standard of banks is well-earned, so it should be no surprise that it’s doing well.

But you still have to wonder just how it’s making so much money in an otherwise anemic economy.

Obama is no FDR, We’re no Mass Movement.

It’s open season on Obama whom so many hoped would lead us out of the neo-liberal wilderness. He once was a community organizer and ought to know how working people have suffered through a generation of tax breaks for the rich, Wall Street deregulation, and unfair competition.

When the economy crashed he was in the perfect position to limit the unjustified pay levels on Wall Street and bring a crashing halt to the runaway financialization of our economy. Instead we got a multi-trillion dollar bailout for Wall Street, no health care reform, no serious financial reforms whatsoever, record unemployment, and political gridlock that’s will be with us for years to come.

Is it his fault? Or ours?

Obama has made his share of blunders. However, his statement that we “don’t begrudge” the high salaries on Wall Street because that’s part of the “free-market system” is about the dumbest thing he’s ever said. He was referring to Jamie Dimon’s $17.4 million payday, and Lloyd Blankfein’s $9 million.

But surely the President knows that at this very moment Wall Street is still receiving $10.4 trillion (not billion) in subsidies from the taxpayer — and that’s after the TARP repayments. That’s some free-market.

Dimon’s JP Morgan Chase still has a $34.3 billion subsidy, and Blankfein at Goldman Sachs is sitting on $23.9 billion of government welfare. (Many thanks to Nomi Prins for her first rate sleuthing.. ) Dimon and Blankfein would love to re-write history so that they could be portrayed as swashbuckling entrepreneurial survivors, men who avoided the bad risks that felled so many others.

But without government welfare their institutions would have gone under. They are two very lucky (and well connected) welfare recipients — lucky not to be among the 28 million Americans that go without jobs or are forced into part-time work.

We can moan all we want about Obama’s shortcomings, the mistakes his Administration has made and his inability to take on Wall Street.  But we haven’t exactly applied a lot of heat. A million people on the mall demanding “Jobs Now” along with serious Wall Street reforms might help. A million people showing up repeatedly might actually get the job done.

The free market on Wall Street is dead and has been for a long time. It’s been replaced by a billionaire bailout society that will provide decades of chronic unemployment and on-going bailouts for the super-rich. It’s a damn shame Obama can’t deal with it. It’s a bigger shame that we won’t force him too.

Banks Prepare to Pay Record Bonuses to Employees

The bank bonus season, that annual rite of big money and bigger egos, begins in earnest this week, and it looks as if it will be one of the largest and most controversial blowouts the industry has ever seen.

Bank executives are grappling with a question that exasperates, even infuriates, many recession-weary Americans: Just how big should their paydays be? Despite calls for restraint from Washington and a chafed public, resurgent banks are preparing to pay out bonuses that rival those of the boom years. The haul, in cash and stock, will run into many billions of dollars.

Industry executives acknowledge that the numbers being tossed around — six-, seven- and even eight-figure sums for some chief executives and top producers — will probably stun the many Americans still hurting from the financial collapse and ensuing Great Recession.

Goldman Sachs is expected to pay its employees an average of about $595,000 apiece for 2009, one of the most profitable years in its 141-year history. Workers in the investment bank of JPMorgan Chase stand to collect about $463,000 on average.

Even some industry veterans warn that such paydays could further tarnish the financial industry’s sullied reputation. John S. Reed, a founder of Citigroup, said Wall Street would not fully regain the public’s trust until banks scaled back bonuses for good — something that, to many, seems a distant prospect.

“There is nothing I’ve seen that gives me the slightest feeling that these people have learned anything from the crisis,” Mr. Reed said. “They just don’t get it. They are off in a different world.”