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>> John Connaughton, Ph.D.
I know two billion dollars, to the average person, seems like a big loss, and it seems
like irresponsible behavior on the part of J.P., but by the same token, they'll still
make a profit this quarter, okay? They are a big bank. And, while a two billion dollar
loss hurts, they'll still turn a profit this quarter.
It's just a question, sort of, the sensationalism - did they make a mistake? Did they risk too
much and, when they doubled-down, was that a mistake? Yeah, certainly, it was. People's
heads will roll. There will be an investigation. The... has already lost his job and others
will follow. The bottom line is, banks here are in better shape today, across the board,
including J.P., than they were in 2008 when Lehman collapsed and Wachovia and WaMu were
purchased in advance of them collapsing.
Consequently, the banking system has slowly and surely made a return. Is it back to where
it was before all this began? No. But I can see, two or three years out, where the banks
will be back in that position.
You know, one of the things that's been interesting about the amount of cash they're holding,
just to kind of put it in perspective, it's 1.48 trillion dollars now that's just sitting
in the form of cash. If we were to spin the clock back five years, they would have only
been holding about 2 billion dollars. So, that's almost a one thousand fold increase
in the amount of cash that's sitting, not a thousand percent, a one thousand fold increase.
So, that's a big difference in terms of the amount of cash holding. And, that's part of
the problem why the quantitative easing that the Fed is undertaking, QE one and QE two
have not been as successful at pushing forward the economy because that money, when it gets
pushed out to banks, which is what quantitative easing does, has just been held onto by banks.
So, we're starting to see a little bit of that free up, and we may see, if everything
works out okay, we may see that in the second half of this year, maybe in the first half
of 2013, we may start to see that quantitative easing that the Fed undertook two, three years
ago, start to pan out in the economy.