Why did Wall Street firms just have their best quarter ever?

[rusty charly]

Traditional stocks are struggling, so your retirement portfolio isn’t zooming up along with the big boys. Even with the Dow close to breaking its all-time high—remember the year 2000?—brokerage units are generally struggling. Meanwhile, the Federal Reserve is still raising rates, and the yield curve has flattened. (Translation: The difference between long-term and short-term interest rates is virtually nil.) Both trends are generally bad news for big investment banks. So how are they so absurdly profitable?

Part of it is they’re living high off the rest of our penury. From unpayable Visa bills to overambitious real-estate mortgages, not to mention record government debt, the big Wall Street firms repackage debt and resell at a profit. (Lehman clocked record debt origination in the quarter and saw its fees from peddling corporate debt rise 26 percent from last year.) Then there’s the merger craze—i.e., AT&T buying BellSouth for $67 billion. (Morgan Stanley’s fees for dispensing sage advice on acquisitions were up 40 percent for the quarter.) And hedge funds, which are still booming, are generating gigantic commissions by buying and selling plain-vanilla stocks and bonds, and also fueling rapidly growing markets in Wall Street–produced exotica: collateralized-debt obligations, credit-default protection, custom-built portfolios, etc.

http://nymag.com/news/intelligencer/16531/index.html

[YOY]

1. I don't see much economic boom where I'm sitting

and I've been sitting here a while.

[midnight]

2. Hi rusty charly.

You certainly have peaked my interest in the financial world. I signed mortgage papers today, and did a bit of waking up to the new banking rules. Man have things changed since 9-11. So are you saying Wall Street is able to profit from our misery, bad financial risks, etc..... And that it is not profiting from a strong economy?

[newswolf56]

3. I believe this is the first time ever the capitalist ruling class...

has been able to (deliberately) structure a boom so that NONE of the profits trickle down to the rest of us. If my understanding of what they have done is correct -- engineer an economy in which they take it all no matter how hard we try to get out from under -- it is merely another proof of how desperately we need the resurrection of the New Deal: the Marxist truth of class struggle (and all its implications) grafted onto singularly American principles of constitutional governance -- and not even one Democrat (yet) with the brass to be the new Franklin Delano Roosevelt.

[Sammy Pepys]

4. I'm doing pretty good thus far.

And I don't have a terribly unusual portfolio.

[fasttense]

5. I closed all my stock accounts because I was losing money

And I didn't have a terribly unusual portfolio. So you got lucky Sammy Pepys. Not everyone did. I'm staying out of the market until the big boys are finished playing and rigging it.

[Sammy Pepys]

7. I don't think it was luck...

I think it was mutual funds...I let someone else do the stock picking! :)

[CountAllVotes]

8. I did the same

I had to hire a damn tax person too which cost me another extra $500 being I had the IRS after me (the mutual fund brokerage firm had sold the accts. 3X and in generated huge amounts of paperwork and made it look like I had made a bundle in the stock market!). The tax guy figured that I have lost $3,000 in the last 3 years!

I closed out all of the stock market investments out in July of 2005.

No more stock market for me ever.

Every time I even *think* about it, I take out some old stock certificates purchased by my old grandfather in 1906 for shares of a goldmine in Nevada ($500) and another one in 1928 (for $1,000 nonetheless!) from a company that went broke. They are ALL worthless! Can you imagine how much that $1500 would be today?

These certificates were held on to my my late uncle who never invested a nickel in the stock market. My father found them after he had passed way among st his sparse belongings. I think these were kept for a good reason - a *reminder* of what happened in 1929.

And also, a *reminder* to never do it again!

:dem: :kick:

[Greyhound]

6. Short answer; They are, top to bottom, thieves.

It's too late tonight for long answers, they're just depressing anyway.

[unblock]

9. wall street firms don't make money the same way investors do

nor should they.

wall street profits mostly from a generally stable market so that many deals can get done. you don't want to start a deal under one market assumption and then get to the closing table and find that the market has shifted. that kills the deal, and goodbye closing fee.

a generally rising market is better than a generally declining market just because it helps pull more people in, but the key is having modest volatility.

extreme volatility is good for a very brief flash of high fees as people bail out of their riskier investments, but it sucks after that as everyone is paralyzed with fear and deals can't get done.

of course it also helps when regulatory oversight is lax, and no one has any objection to big mergers that create monopolies, etc.

[On the Road]

10. Pictures of a Stock Market Mania

Disregard the large fonts and exclamation points. I've followed Alan Newman's columns for awhile and he constantly comes up with new ways of looking at the markets:

http://www.cross-currents.net/charts.htm

This isn't a prediction. I think it's possible the markets will rally for the next few months, especially if oil comes down again. But it's good to keep the long-term perspective in mind.