Peter Morici is an economist and professor at the Robert H. Smith School of Business at the University of Maryland. He is a recognized expert on international economics, industrial policy and macroeconomics. Prior to joining the university, he served as director of the Office of Economics at the US International Trade Commission during the Clinton Administration.

Monday afternoon, Goldman Sachs reported much larger than expected first quarter profits, and this comes on the heels of Wells Fargo’s strong earnings reported last week.

No one should be surprised.

The Federal Reserve has provided the banks with lots of cheap funds through its various emergency lending facilities and quantitative easing.

The Federal Reserve has permitted the banks and financial houses to park vast sums of unmarketable paper on its books—securities made nearly worthless by the misjudgment and avarice of bankers. In return, the Fed has provided these scions of finance with fresh funds, cheaply, that they may lend at healthy rates on credit cards, auto loans and even mortgages.

While the Fed cuts the banks slack, the bankers are busy turning the screws on their debtors by raising credit card rates and fees, and harassing distressed borrowers with all the zeal of the Roman army sacking Palestine.

It takes good banking skills to borrow at three percent and lend at five and make a profit.

It takes much less business acumen to borrow at two and lend at five and make a profit, and that is exactly what has happened. The extra fees are just gravy.

Increasing the spread for banks is like subsidizing parts purchases for car companies. The folks at GM would look like wizards if the Fed had been similarly generous with them.

This all comes at a cost to someone—America’s elderly.

Many retirees depend on interest from certificates of deposit. Those rates are down dramatically, and as CDs expire retirees are compelled to reinvest their savings at lower rates and live on less. They can take comfort that their sacrifices are helping pay off Wall Streets losses from the lavish bonuses paid bankers. For example, the $70.3 million Goldman doled to CEO Lloyd Blankfein in 2007.

The contrast between how the banks and car companies are treated is the product of political acumen, not financial skills, at Goldman Sachs and other banks. Feeding the campaign machines of both political parties and lavishing speaking fees on future White House economic advisors, these financial wizards have managed to purchase preferred treatment in our Capital.

When times are good their troops feast like a conquering Roman army, and when they fail, Washington gives them welfare on the gold plates of emperors.

Now the banks, led by Goldman, want to pay back their TARP funds and free themselves of federal restrictions on compensation. After all as private concerns, they argue what they pay will depend on what profits they can generate.

Yet, the Fed’s lines of credit to banks, insurance companies and the like exceed $800 billion, and its monetary policy transfers income from retirees to the likes of Blankfein.

Isn’t this a great country?

Taxing Grandma to subsidize Goldman.

Peter Morici,

Professor, Robert H. Smith School of Business, University of Maryland,

College Park, MD 20742-1815,

703 549 4338 Phone

703 618 4338 Cell Phone

pmorici@rhsmith.umd.edu

http://www.smith.umd.edu/lbpp/faculty/morici.html

http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm