Banks winning at expense of taxpayers
Archived Articles 15 Jul 2009  EWR
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Larry Kudlow
Banks surged and stocks followed yesterday, mostly on the heels of high expectations for trading firm Goldman Sachs, which really is more of a hedge fund than a real bank.

Last Thursday, I said banks are my favorite stock market sector. So I got it right one time in a row. With a steep upward Treasury curve, even a banker can make money borrowing at near-zero and lending at much higher rates.

Deposits are flowing into the big banks. Mark-to-market reform permits cash-flow valuation to replace fictional distressed-market sales which have unnecessarily crashed bank capital and profits. Toxic assets can be funded by low rates for as far as the eye can see. And let’s not forget that President Obama — the biggest government-bond salesman in our nation’s history — needs Goldman and other banks to re-offer the massive, record-breaking, and unprecedented Treasury debt sales to the public.

In other words, our terrible spending-and-borrowing story is at least good for somebody — even if it does mean banks are winning at the expense of taxpayers.

Incidentally, the federal budget deficit update for June was horrible. Year to date the deficit broke past $1 trillion. Now, June is always a surplus month. But this year it’s a deficit month.

We are cruising toward a $2 trillion budget deficit for fiscal year 2009. Federal spending is up 23 percent against the year-ago level. Recessionary revenues are plunging; they are down 16 percent. Personal tax receipts are off 22 percent and, get this, corporate taxes are off an astounding 57 percent.

But no one in Washington gives one hoot about business. What a pity. Businesses are the ground-zero job creators in the economy.

So all is not well in this story. But as far as yesterday goes, stocks were very bullish.

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