7◼ REMARKS Bloomberg Businessweek July 27, 2020
A bunchofWallStreetexecutivesgottogetherfordinner
a decadeagowhiletheU.S.economywasintatters.Their
industry,freshoffa bailout,wasprintingbigprofitsagain—
andAmericanswereseething.Congresswantedhearings.
As the executives picked at their food, one from
GoldmanSachsGroupInc.turnedtohispeerfromMorgan
Stanley,whichhadbeenslowertobouncebackfromthe
crisis,andsaid:“Youhavenoideahowdamn luckyyou
aretolosemoneywitha hopelessbusinessmodel.”The
tableeruptedinlaughter.Thekerneloftruthinthequip
isthatnobodylikesbankersprofitingastheworldburns.
Itdrawsa harshspotlight.
Overthepastweek, WallStreet’sfive biggestinvest-
mentbanksdisclosed$45billion inrevenuefromtrad-
inganddealmakingunits,markingthosebusinesses’best
quarterinmodernhistory.Thecatalyst:a deadlyglobal
pandemicandtheFederalReserve’sunprecedentedmea-
surestopropuptheeconomy.
It’shardtoimaginea moreawkwardtimetolanda wind-
fall.Foryears,banktradingchiefshavebeenbegging,even
praying,fora surgeinvolatilitytolifttheirfortunesby
spurringclienttransactions.Banksfinallygottheirscore
asmarketsplunged,withtelevisionscreensshowingrefrig-
eratedmorguetrucks.Thentheymadeevenmoremoney
asauthoritiesrushedtohelp.Morgan Stanleypostedits
highestrevenueand profitever.JPMorganChase &Co.
blewpasttherevenuerecorditstraders notchedinthe
firstquarter—topping it by34% inthe secondquarter.
Goldman’sprofitrose,evenasthecompanysetasidean
additional$1billiontocoverpotentiallegalcosts,includ-
ingthoserelatedtoprobesintoitsroleinthelootingofa
Malaysianinvestmentfund.
Thenumberswerehighenoughthattheranksofsell-
sidestockanalysts(sometimesmockedascheerleaders
forprefacingconferencecallquestionswith“Greatquar-
ter,guys!”)wonderedaboutthepotentialfora publicback-
lash.“Fairornot,banksarebeingdepictedasbeingonthe
wrongside”ofeconomicinequalityandotherissues,UBS
GroupanalystSaulMartinezsaidontheJPMorganearnings
call.“I’mjustcuriousif youareconcernedatallaboutpop-
ulist,antibankpoliciesgainingtraction.”
Atleastthebanksdidn’tcausethecrisis—unlikein2008.
Inrecentyears,banksmaintainedtheirextensivetrading
operations,evenaslowvolatilityinthemarketsmadeit
harderforthemtogenerateprofits.Oneargumentfor
keepingtheunitswasthattheycanprovidea hedgein
crises, making money while other parts of the bank suf-
fer from loan defaults and further damage from a slump-
ing economy.
In fact, three of the Wall Street giants—JPMorgan, Bank
of America Corp., and Citigroup Inc.—set aside much of the
money generated by the trading bonanza so they can better
weather anticipated losses on lending to desperate compa-
nies and consumers. All together, the five banks stockpiled
more than $25 billion in the quarter.
Banks also are quick to note that the Federal Reserve
didn’t step in to save them as it did in the last crisis. Instead,
the banks helped head off another meltdown by aiding com-
panies in raising money and avoid bankruptcy. “The most
important thing we could do is be a healthy and vibrant
bank through this crisis,” JPMorgan Chief Executive Officer
Jamie Dimon said in response to the analyst.
The Fed may not have explicitly paid the banks billions
of dollars, but it created an environment in which their suc-
cess was all but guaranteed. The central bank helped cash-
strapped companies raise money to shore up their finances
and pay their bills. Banks made money from facilitating the
fundraising, as well as from the related spike in stock and
bond trading.
Bank executives say that such is the life of an essential
middleman: You ride the waves as they come. But this tur-
moil happened to keep the music playing at banks after 2019,
their most profitable year in history. “It’s always good to
be a Wall Street bank,” says Greg Gelzinis, a policy analyst
at the Center for American Progress, “whether we are in a
recession [or not].”
Beyond the worries over optics are deeper policy ques-
tions. How effective is the Fed’s stimulus in providing credit
to critical industries, and how much lining of Wall Street
pockets is acceptable as a side effect? When authorities
intervene, can society win more than traders? What of the
moral hazard in throwing a lifeline to companies that took
on too much debt?
Fed Chair Jay Powell has indicated that, in this moment,
those concerns are secondary to saving the economy and
millions of jobs. But Wall Street’s gains will only revive per-
ceptions that the deck is stacked in its favor.
Representative Katie Porter (D-Calif.), who’s been joust-
ing with JPMorgan’s Dimon for 15 months, couldn’t resist
taking a shot after the bank posted results. Why, she asked,
shouldAmericansacceptbankersbecomingricherand
richerinthemiddleofa pandemic?
Thosesentimentscanhavebigramifications.Theprofits
investment banks made in the wake of bailouts in 2008
spurred the antigovernment Tea Party movement, the
Occupy Wall Street demonstrations, and a wave of new reg-
ulation. Complaints that the game is rigged later played into
the ascent of populism in the 2016 presidential election, and
they reverberate today.
Banking leaders are well aware of the stakes. Some
recently made it clear to their troops that they cannot be
seencrowing.If it weren’tforthepandemic,GoldmanCEO
DavidSolomonmighthaveenjoyedthesightofa packed
auditorium at the firm reacting to the best quarter under
his leadership. Dimon would have strolled the aisles of
JPMorgan’s Madison Avenue trading floors, personally salut-
ing his workers.
Instead, Solomon met with a couple of dozen executives
scattered in the hall in front of him. At JPMorgan, Dimon
emailed employees a tightly worded “congratulations.” <BW>