Tag Archives: economists

Apr 13

Wells Fargo and JP Morgan Chase Release Earnings

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Earnings season is upon us, and no sector will be more closely watched by economists than the banking sector. Fresh from reports that the large banks are not cooperating with the Treasury Department on a floundering little known program to assist unemployed homeowners and underwater homeowners,  the large banks reported earnings that exceeded economic forecasts.

JP Morgan came in with EPS of $1.31 on $26.7b in revenues; impressively above the estimates of EPS $1.18 and revenues of $24.6b. Under the headline were murky details like credit cards swinging from a loss to a gain largely as a result of the release of $2billion in loan loss reserves.

Wells Fargo delivered earnings of $0.75 on $21.6b in revenues, handily ahead of estimates of $0.73 and $20.4b, respectively.

With similar failures–due in large part to banking push-back–of the HAMP and HARP programs to assist struggling homeowners modify and refinance their mortgages following the fraudulent run-up in home values due in part to large financial institutions like Wells Fargo and JP Morgan Chase, it is reassuring to know that the behemoths’ bottom lines are sound.

I have long since thrown in the towel on any hopes that the current administration will force the large banks to adhere to the terms if the various governmental programs set-up to offer real help to struggling homeowners. However, it is important that we not allow these large financial institutions to return to staggering profitability without calling attention to it.

Apr 13

Does Equality Matter?

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For the past several decades, the middle class and the poor have seen their after-tax incomes fail to keep pace with inflation, while the after-tax income of the top 1% and top 20% have seen dramatic gains. Jared Bernstein recently published a piece on the subject on his economics blog.

In the 2000s, the median income of working age families stagnated and poverty went up, even as the economy grew and the capital-gains powered income of the top 1% soared (see figure). Since the current recovery began, profits have soared, inequality is back on the rise, and the pay of average workers has stagnated of late. My own longer-term analysis of the factors responsible for the diminished elasticity of poverty with respect to growth finds inequality to be the most important factor (see figure here).

The latter 1990s provides a very useful counterexample. With true full employment upon the land–my favorite inequality antidote–inequality actually diminished between the middle and bottom (the top continued to pull away—cap gains, again), low wages grew with productivity for a New York minute, and poverty rates fell sharply. Inequality, at least in the bottom half of the wage scale, compressed and a lot more growth reached a lot more people.

Mr. Bernstein recently debated two right-leaning economists ion the subject, and this debate formed the basis of his article. It’s an interesting read.

Apr 09

In Case of Emergency, Call Washington

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LayoffsThe next time you have an emergency and require public services, I recommend that you spend the time waiting for help calling President Obama, your Senators and House Representatives in Washington D.C., and your state representatives to demand increased funding for public employees. Since the beginning of the most recent depression, the public sector has lost over 600,000 jobs while both Democrats and Republicans stood by and did nothing. Granted, Democrats have offered up plans to aid the states in meeting payroll obligations in order to keep public sector employees on the job. However, these proposals have been plowed under by Republicans. In giving the Democratic Party credit for attempting to offer assistance, it is also important to note that the White House has also gone out of its way to brag about job cuts, hiring and pay freezes, and departmental mergers at the federal level.

Whether bowing to political or polling pressure, this Democratic administration has done little to stem the losses of public employees, while Republican leadership in Congress and at the state level has dome even less, in some cases actively implementing policies to kill public sector jobs. The cuts to public sector employment during this depression have been unprecedented. Near universal agreemnent exists among economists that public sector employment during times of economic trouble should be increased forcefully, rather than cut back, because to do so exacerbates not only public sector unemployment, but private sector unemployment.

Moreover, the cuts affect the public in real and important ways. School budgets are slashed as teachers and staff are laid off, fire and police response times increase, public parks close, retraining and unemployment services are cut, small businesses and employers face longer wait times in filing necessary paperwork and application materials.  The Post Office is even at risk. Essentially the quality of life of the community at large decreases significantly.

While I understand the need to keep deficits under control when economics rather than hyperbole indicate a need to do so, punishing the people who do the important work of public service is not only mean-spirited, it is fiscally counterproductive.