When bank profits zoom, economic crisis can loom...

From today's NYT: "Stocks surged more than 3 percent Thursday as a major bank predicted record profits. The announcement by Wells Fargo, one of the nation’s largest consumer banks, kindled hopes that the financial system, which dragged the larger economy toward the brink, was now poised to lead the way out.The Dow Jones industrial average gained 246 points and the broader Standard & Poor’s 500-stock index rose nearly 4 percent. The S.& P. 500 has now risen more than 25 percent since stocks bottomed out on March 9, one of its best runs since the Great Depression....Wells Fargo sent the stock market on a dizzying rally Thursday when it revealed that its mortgage applications surged to $190 billion in the first quarter, a sharp increase that would lead it to a record $3 billion profit for the period. Like other big banks, Wells appears to have benefited from a surge in mortgage refinancing because of ultralow borrowing rates engineered by the government and an exodus of competitors. Bank of America, JPMorgan Chase, PNC Financial and others have had similarly strong performances and are expected to post improved profitability when earnings reports are issued next week."

These profits are essentially delivered by the Fed and the Treasury to the banks. A revised income statement showing the bank's true operating performance would yield quite a different story. The fact that quite a few of the public are pouring money into equities shows the lack of understanding and a lack of ethics. A higher stock price is beneficial to the managers, but the money may be well spent trying to help the jobless. No matter how low the rates get, the credit defaults will slow down only if employment improves, and currently there is no visible path to that improvement. This author's estimate is that an entire generation here will have to go through pain and learn some of the basics first, before the picture begins to improve.