What is the Source of the Banks' Recent Profits?

Over at The Baseline Scenario, there's a great post delving into the most recent quarterly report of J. P. Morgan (JPM). They reported a profit just like Wells Fargo did and the result was another bounce in the market. JPM is a bank and an investment firm. They make money by lending and investing in companies and then sharing in the profits as those companies expand. There is no expansion going on right now. None. So what happened? How did JPM record a profit?

As far as I can tell from the post, they made money borrowing short term from the Fed at 0.5% and then buying longer term Treasuries that paid about 3%. Here's their chart of fixed income investment results.


Check out that monstrous bounce from last quarter to this quarter where they went from a roughly $1.5B loss to a $4.5B gain. That's a $6B swing in three months on fixed income investments.

Can you think of any event in the real economy that would lead a bank to register a $6B gain in three months? I can't. The bank results that are being released right now are just screaming to me that this is a giant paper scheme to make money. It's all fake money since it's being printed by the Fed. There's nothing real here at all as far as I can tell.

The market bounce is real enough, though. Whatever the source of the cash, the banks are making money and people are diving back into investments. I just can't see that this is going to last. It looks like the gigantic government-created bubble.

When Obama talks about not building our future economy on the same pile of sand, he's talking total nonsense, however. This is nothing by sand all the way down. But then again it's Barack "the days of borrow and spend are over" Obama. Nothing he says has any basis in the real world anyway.

It's a surreal time to be alive, no?