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In Switch, 'Real Economy' Hits Big Banks

Slumping profits are 'payback' from Main Street whipped by bad practices

By Harry Kimball, Newser Staff

Posted Oct 19, 2009 9:49 AM CDT

(Newser) – Those concerned about the nation’s banks should forget about the “softly, softly policy” of the Obama administration that has allowed Goldman Sachs to go back to business as usual in spectacular fashion. The real problem, Paul Krugman writes, is banks like Citi and Bank of America that are still floundering despite taxpayer largess. And the calculus remains the same: “Heads they win, tails the rest of us lose.”

Citi and BofA may seem peculiar, in that they quickly announced profits earlier this year and paid back TARP funds. Part of that was “a figment of the accountants’ imaginations,” Krugman writes in the New York Times, but the real problem is, well, real. “We’re looking at payback from the real economy,” Krugman writes. “In the first phase of the crisis, Main Street was punished for Wall Street’s misdeeds; now broad economic distress” is hitting banks where it hurts, and they’re still not lending, “helping to perpetuate that economic distress.”

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Pedestrians walk past a Bank of America branch in San Francisco. (AP Photo)

Customers use ATM machines at a Citibank in New York. (AP Photo)

Charts shows quarterly earnings for Citigroup, JPMorgan Chase & Co. and Goldman Sachs Group Inc. since the third quarter of 2008. (AP Photo)

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The main thing for the time being is probably to do as much as possible to support job growth. With luck, this will produce a virtuous circle in which an improving economy strengthens the banks, which then become more willing to lend. - Paul Krugman

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In Switch, 'Real Economy' Hits Big Banks