But articles in this week’s Huffington Post and Washington Posthave both pointed out that the Obama years have been financial boom times for bankers, with Wall Street institutions earning more in the first 2 ½ years of this administration than they earned during the previous eight years under George W. Bush.
Part of the reason for this phenomenon is the payback of TARP funds by banks that occurred at the end of the Bush presidency. But even that massive $25 billion write-down doesn’t account for the remarkable success of the financial industry since Obama became president.
Some analysts attribute the success to the fact that the banks have continued to use their cash to invest for increased earnings rather than loan money to individuals and businesses – hence enhancing their own profitability while failing to spur growth in the general economy.
Writing in the Washington Post, Zachary Goldfarb reported:
“Neither the Bush administration nor the Obama administration, for instance, compelled banks to increase lending to consumers, known as ‘prime borrowers.’ Such a step might have spurred spending and growth, although generating demand for loans may have proved difficult in the downturn.”
However, one could make the argument that it unsurprising that banks have done better under the Democrat Obama than they did under the Republican Bush. That’s because the U.S. economy almost always performs better under Democratic administrations than it does under Republican administrations. This counter-intuitive fact has been posited in a scientific study that covered a wide swath of administrations and economic situations.
The December 2006 study by Elliott Parker, Ph.D., Professor of Economics at the University of Nevada-Reno, determined through an analysis of U.S. Department of Commerce data that “the economy has grown significantly faster under Democratic administrations, and more than twice as fast in per-capita terms.” His study covered the period from 1929 until the end of 2005.
A 2007 New York Times article by Princeton economics/public affairs professor Alan S. Blinder, a former vice chairman of the Federal Reserve, noted:
“The stark contrast between the whiz-bang Clinton years and the dreary Bush years is familiar because it is so recent. But while it is extreme, it is not atypical. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.”
While the historical data seem to indicate that the American economy has fared better under Democrats than under Republicans, it could be argued that current banking profits under Obama are giving a grossly distorted view of the economy. While Wall St has significantly rebounded off its 2009 crash lows, conditions on Main St remain dismal: 9% unemployment, 16% underemployment, a broken housing market, falling incomes, rising gas, food, healthcare, & education prices, and a record number of Americans on food stamps.
But, banking profits may not hold up for the remainder of Obama’s first term. The industry is already facing substantial layoffs in the immediate future. The Occupy movement is a public relations cloud hanging over Wall Street, and a growing trend to move private accounts out of large banks and into Credit Unions and small, local banks seems to have reached critical mass with last weekend’s Bank Transfer Day. But as of this moment, banking remains in a financial comfort zone under a president who claims to dislike bankers.