Weekly Wrap: Have banks hit bottom?

A Wall Street sign in New York City's financial district.

TEXT OF INTERVIEW

Kai Ryssdal: Bank earnings came in a flood this week so fast you could barely keep track. All of them reporting better-than-expected profits. So it raises the question of whether the banks, at least, have hit bottom. To help us figure that out, and to help us do our Weekly Wrap of Wall Street and beyond, it is a bloggers' paradise today. Felix Salmon from Reuters and John Carney from Clusterstock.com. Hi again, guys.

John Carney: Good to be here.

Felix Salmon: It's great to be here, Kai.

Ryssdal:I'm going to play some tape for you fellas this week. This is Jamie Dimon, the CEO of JP Morgan Chase, yesterday talking about earnings and what a great number it was. And then he said this about how he's not going to participate in the P-PIP -- the public-private investment partnership that's going to get all these toxic assets off the banks' books. Here we go.

Jamie Dimon: We have no intent on using P-PIP at all. We don't need it. You know, we have our own assets. If we want to sell them, we'll sell them. We'll mark them properly. If we want to buy them, we'll buy them. We're not going to, certainly not going to borrow from the Federal government, because we've learned our lesson about that.

Ryssdal: Felix, doesn't sound to me like Jamie's a guy who really wants to play ball here, does he?

Salmon: He doesn't want to play ball at all, and the government would love him to play ball. They forced him to take $25 billion of TARP money. They're throwing unlimited amounts of liquidity from the Fed at him. He's making quite a lot of money out of the fact that the spreads between borrowing and lending are really wide these days. So, that's great for his earnings. But he doesn't like Congress peering over his shoulder and looking at how much money he's making, and so he's trying to distance himself as much as possible from the government, which is a bit rude really given all they've done for him.

Ryssdal: Yes, but, the guy has a pretty good record over the past year and a half, right? I mean, he swallowed up Washington Mutual, he helped out with Bear Stearns. John, is he getting a little big for his britches?

Carney: I think Jamie Dimon's always been a little big for his britches, but he has a good point here in that when they originally took the TARP money, it didn't have the kind of restrictions that later on got attached to it. And so yes, he's being a little ungrateful as Felix said, but he's also saying, you know, you guys changed the deal on me, so I'm not going to trust you going forward.

Ryssdal: Help me understand this, though, John. Isn't it a good thing to give back the TARP money?

Carney: It should be a good thing, as long as the banks are healthy enough. If a bank is healthy enough that it won't again go into failure mode, then it's a good thing to give it back. The problem is we're not sure whether they are healthy enough to actually give it back and not go back into cardiac arrest once again.

Salmon: There are also systemic problems with giving back TARP money, Kai. If Jamie Dimon gives back his TARP money and Goldman Sachs gives back their TARP money, everyone's going to start looking at banks and thinking 'if you're not giving back your TARP money, then that must mean you're very unhealthy,' and will start selling out from underneath those banks, which is going to cause all manner of nasty systemic implications. So the government really doesn't want anyone to give back their TARP money right now, because the minute that starts happening that sort of reveals which banks need the money, and that's not what the government wants.

Ryssdal: Let me go back, Felix, to something you said when we had you on, I guess it was at Christmas time, and it has become actually my sort of, you know, Felix Salmon economic indicator. You said, "It's going to get worse before it gets worse." Where are we in your dynamic here?

Salmon: The key thing to do here is not to look at the stock market. A lot of people think that the stock market is a good indicator of how healthy the economy is or how healthy the economy is going to be -- the stock market has no clue. And the bond market is really where you look for people who are really worried about what could go wrong. The stock market is for people who are hopeful about things going right, and the bond market is for people who are worried about things going wrong. If you're worried about things going wrong, you look to the bond market. And the bond market is not very healthy these days.

Ryssdal: John, your sense?

Carney: Well, we've practically broken the bond market when it comes to the debt of the banks, also, by allowing them to issue government-guaranteed debt. What that means is that the one indicator that we should have -- which is as Felix said, the bond market -- isn't working properly to signal health or ill health right now. It's put us further into the dark than we were before that.

Ryssdal: All right, wait a minute. We've been through a year and a half, two years of this mess, and you're telling us we're still in the dark?

Carney: We're still in the dark. We're probably even more in the dark than ever before because the amount of noise coming out of the government is confusing the signals that the market would normally send to us.

Ryssdal: I so don't feel better now. John Carney, at Clusterstock.com. Felix Salmon, at Reuters. Thanks guys.

Carney: Thank you.

Salmon: Thank you.

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