Stock Preacher

Goldman Sachs and JPMorgan Chase Co. have emerged two bellwethers of the US finance sector in the post-bailout Wall Street, leading the surge of optimism with their strong profits in the Y 2009 Q-2. Six major US banks have reported their second-quarter profits in the past two weeks, vastly beating analyst predictions. The business of Goldman has little to do with common consumers, its quarterly earnings of more than US$3.4B posted were buoyed by record results in its trading and underwriting business. According to the quarterly report, the Wall Street giant generated a record US$6.8B in revenue from fixed income, currency and commodities trading during the quarter. Revenue from equity underwriting jumped to US$736M form UD$ 48M in the first quarter compared with US$616M last year. JP Morgan Chase, the largest US bank by market value, posted a US$2.72B earnings, and made its profits mainly from investment-banking services including bond and equity trading, and underwriting debt to help companies issue shares and bonds, not commercial loans and consumption credit.

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Last week the fiercely independent Financial Accounting Standards Board agreed to alter a portion of the rules under extreme pressure from the US Congress. The MTM standards have forced many financial institutions to overstate losses on Trillions of US Dollars worth of assets that has intensified the global financial crisis. William M. Isaac, a former chairman of the Federal Deposit Insurance Corp., told a House Financial Services subcommittee hearing on March 12 that “MTM accounting has destroyed well over US$500B of capital in our financial system.

Moreover, since capital can be leveraged about 10 times in making loans, the rules have “destroyed over US$5Tof lending capacity,” said Isaac, now a consultant with the Secura Group of LECG Corp. The problem with Mark-to-Market accounting is that it officially has presumed there’s a functioning market in whatever asset is being valued, and that means a deal between a willing buyer and seller that is not being forced to sell. Actually, no such market exists for many mortgage-backed securities.

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