"Financial Industry Fights New Regulations To Protect Skyrocketing Profits"
While many Americans are still feeling the pain of the Great Recession in the form of unacceptably high unemployment and mounting foreclosures, corporate America has come roaring back in 2010. According to results released Friday by the Bureau of Economic Analysis, “corporate profits grew 36.8 percent in 2010, the biggest gain since 1950.”
But these numbers hide the fact that not all industries are doing well. In fact, the recent growth in corporate profits was driven almost entirely by the financial industry:
Domestic profits of financial corporations increased $57.7 billion in the fourth quarter, compared with an increase of $34.6 billion in the third. Domestic profits of nonfinancial corporations decreased $10.1 billion in the fourth quarter, in contrast to an increase of $0.3 billion in the third. In the fourth quarter, real gross value added of nonfinancial corporations increased, and profits per unit of real gross value added decreased.
The financial industry now accounts for about 30 percent of corporate operating profits. As the Wall Street Journal’s Kathleen Madigan wrote, “that’s an amazing share given that the sector accounts for less than 10% of the value added in the economy.” Before the Great Recession, the financial industry accounted for about 23 percent of corporate profits.
At the same time that it’s reaping an ever-larger share of corporate profits, the financial industry is lobbying hard against new rules in Congress that would restrict some of its activities. For instance, the banks are trying to delay (and ultimately repeal) a new rule limiting how much they can charge merchants for the use of debit cards. They have all but ended the push the enact a bank tax on the largest financial institutions, and they are fighting tooth and nail against a settlement regarding the foreclosure fraud scandal that would involve them modifying $20 billion worth of mortgages.
Several of these banks have also paid nothing in corporate income taxes in recent years, taking advantage of the byzantine corporate tax code to hide profits offshore. So, as Madigan noted, “given the latest profit numbers, it is hard for banks to cry poverty” regarding new regulations that are coming online or for having to pay homeowners to rectify past abuses.
Yglesias has more:
As long as profits in this sector are so high, a disproportionate share of hard-working greedy people will flow into it, deploying their intelligence to try to find ways to game the system, depriving more entrepreneurial sectors of the economy some of the talent they need.